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China: Employment to Rural Workers

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You are an economic adviser to the government of China in 2008. The country has a current account surplus and is facing gathering inflationary pressures. The current account surplus is large, in excess of 9% of GDP. Additionally, China currently provides a rather low level of government services to its people. China's government would like to attract workers from the rural countryside into manufacturing employment and would prefer to soften any negative impact of their policy package on urban employment.

Using this information, how would you advise the authorities to move the Yuan Reniminbi exchange rate? What would be your advice on fiscal policy?

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Solution Summary

This solution explains how the Chinese government can provide employment to rural workers in the manufacturing sector. The sources used are also included in the solution.

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Since China's government wants to attract works from rural countryside to manufacturing employment and would like to soften any negative impact of its policy package on urban employment, the Yuan exchange rate should be lowered. The rationale is that a lower Yuan ...

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