Project 1

Following the 2008 financial crisis, many countries used fiscal stabilization policy to end the recession quickly. In this case, we explore how the economies of two countries, China and the US, changed after their respective fiscal stimuli.

China is an open economy with a currency fixed to the US dollar. Although since 2005, the official peg has been lifted, and the currency now floats in relation to a basket of goods in the common market, it was unofficially repegged from late 2008 to 2010, in response to the financial crisis.

Following the financial crisis, China instituted, , the 4 trillion plan, which injected almost $USD 600 billion into the economy (about 12% of GDP)

The US also instituted multiple fiscal stimuli, including the Economics Stimulus Act, HERA, ARRA, TARP, and the bailout, totalling almost $USD 3 trillion. (about 19% of GDP)

Note the difference in unemployment rate between China and the US. Then, compare the size of the money supply in China and the US, and the rate of inflation on China and the US. Finally, View how the USD exchange rate has changed over time

The natural rate of unemployment in the US changes, but hovers around 5%. China doesn't release a natural rate, but their actual rate has hovered around 4.5% for the past 15 years.

What models do you see in this case?

Are all the findings consistent with your expectations?

If not, what assumptions about the model may be being violated?

What can you say about each of the two countries' efforts to close the output gap?