Answer to Question #9605 in Macroeconomics for Kris Tully

Question

I would like the following questions answered.

1. Consider the following statement: “China’s current account surplus implies that China has added more to global supply of output than to global demand.” Does a current account surplus necessarily imply the stated outcome for global supply and demand?

2. Explain the role of China's administered exchange rate in contributing to its trade surpluses and therefore growth in the global supply of goods relative to demand.

3. We saw that exports from China have effectively lowered relative wages for unskilled and semi-skilled workers in advanced countries. What has been the effect on wages in China? Explain these forces in terms of the "factor price equalisation theorem" in international trade theory. Do these forces also apply to other factor prices?