ScholarMatic: Explanation & Answer
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With capital controls, think of China as a closed economy; without capital controls, think of China as a small open economy. Remember the relation between net exports and net capital flows from Chapter 6 of the textbook.
Apply the combined insights from Chapters 6, and 13 and come up with your best answers to the questions below. Keep in mind that the answer to some of the questions below is not found in any model we studied, as we have not developed a model with capital controls. Still, try to reason as a business person and answer to the best of your abilities.
Note that China’s exchange rate was fixed between 1995 and 2005. After 2005, China’s exchange regime became more flexible, with an abrupt acceleration in the degree of flexibility in 2015, even though there continues to be ongoing debate about its degree of rigidity/flexibility and fairness to foreign economies.
ScholarMatic: Explanation & Answer
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