Chinese Central Bank to increase money supply by $174 billion

//Chinese Central Bank to increase money supply by $174 billion

Chinese Central Bank to increase money supply by $174 billion

South China Morning Post: China to inject US$174 billion of liquidity into markets amid new coronavirus outbreak

Article published: Feb 2, 2020

IB Economics syllabus: Macroeconomics (monetary policy)

As part of the open market operations, the Chinese Central Bank, called the The People’s Bank of China has decided to increase the money supply. They do so by the use of “reverse repo operations.” This basically means that they are buying government bonds and pay for them by cash. In return, this increases the flow of money into the economy. As a result, there will be more “liquidity” meaning that there is more cash available for consumers and businesses to borrow (i.e. higher money supply).

This was needed as due to the coronavirus, economic activity in China has slumpled, and this expansionary monetary policy might help economic activity kickstart again. Consequantly, if you’re writing a macroeconomics IA on this topic, make sure you show how AD shifts (first inwards due to lower consumption and investment, and then outward due to the monetary policy).

Source of image: Reuters

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By | 2020-02-06T16:10:06+00:00 February 6th, 2020|Macro|Comments Off on Chinese Central Bank to increase money supply by $174 billion

About the Author:

My name is Daniel Szekely and I work as an IB Economics tutor, examiner and teacher. Having earned an MA degree in Economics at the University of Aberdeen, I started my career as a financial analyst at Morgan Stanley, one of the largest investment banks of the world. Yet, despite the promising career prospects of the banking industry, I decided to make a larger social impact by becoming a teacher. Currently, I teach IB Economics at SEK Budapest International School and have been an examiner for over 6 years. I started EconDaddy as a simple blog to share great articles with my students and others taking IB Economics around the world to use for their commentaries. Being a practicing IB Economics tutor, I have first hand insight into the most common mistakes of students, so the EconDaddy blog now also provides exam and commentary writing tips.

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