First of all, I believe that the notion of the natural behavior of the economy (the economic cycle) supports my statement strongly because of the juxtaposition of the states at which the two countries are in. Now, America is in recession and is emerging into the expansion period. This means the economy is starting to improve and move towards the Boom state whereas, China’s economy (now experiencing a boom) may continue to grow at a slower rate as it moves towards the contraction era. Therefore, it is likely that in 10 years the situation will be reversed with the expectations that China’s nominal GDP will start to decrease while America’s will start to increase. As Bo Bonnett once said, “as sure as the spring will follow the winter, prosperity and economic growth will follow recession.”
More to this, with reference to the influences in aggregate expenditure in the economy, the increasing GDP may result in the rise in marginal propensity to save which will decrease the level of aggregate consumption and hence the money GDP. As a result it is possible to argue that a paradox of thrift may occur as the Chinese will want to save more as they earn more, not knowing their actions will reduce their GDP and ability to save in the future.
Furthermore, China’s dependency on exports is unsustainable in the long run: heavy reliance on the country’s exports and investment is unhealthy. This is because in the long run, the factors of inputs are variable.
In conclusion, I believe that China’s economy will not exceed America’s due to the nature of the economic cycle, the effect of paradox of thrift and the dependency on investments and exports. Moreover, as shown in the World Bank statistics, China’s and America’s GDP are at at $7.2981 trillion and $15.094 trillion respectively. In order for China to overtake America’s GDP by 2018, the GDP has to be doubled. Even though China’s GDP is rising at a greater rate. Not only, it is impossible to exceed that of America’s within a decade but also the unhealthy effect it may cause such as rise in income inequality and environmental damages.
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