Global+Economy,+An+Inflated+Outlook


 * Financial Times - Global economy: An inflated outlook
 * http://www.ft.com/cms/s/0/335141d6-6210-11e0-8ee4-00144feab49a.html#axzz1J8DrYIq8
 * April 8 2011
 * The intro of the article compares the economy of the Chinese province Guangxi to that of Frankfurt, Germany stating that they are becoming more and more similar. Zhu Xinzhi went to Guangxi on a recruiting trip and was surprised that his jobs received almost no offers. He goes on to explain this using several examples of how a trend of rising wages and inflation have made his jobs seem unattractive to others, as the salaries he offer are considered too low and workers are choosing to run their own businesses or look for cities where salaries are higher. Because Mr. Zhu is forced to pay more to recruit workers, prices of light bulbs imported into Germany from China will have to be raised. Overall, Zhu Xinzhi's situation reflects China's rising wages, which has had a global impact on the economy. If this process if replicated in the prices of other Chinese goods, inflation in Germany and other European nations will be permanently higher.
 * Vocabulary:
 * Inflation - A persistent increase in the average price level in the economy, usually measured through the calculation of a consumer price index.
 * Wages - One of the payments to the factors of production. It is a compensation received by workers in exchange for their labor.
 * Economic Growth - The overall growth of the economic output of a country, measured in GDP.
 * Interest Rate - Percentage of the face value of a bond or the balance in a deposit account that you receive as income on your investment
 * Commodities: A good or a service that is exchanged for money
 * ECB: Stands for European Central Bank. The Frankfurt-based institution sets Euro zone interest rates, guided by the need to maintain price stability.


 * The graph above shows a market for jobs. According to the graph, demand for jobs increases but the supply remains the same, thus we have a shortage for jobs.
 * The article presents an interesting first-hand perspective of China's rising wages and how it affects global inflation rates. I agree with most of the economics of the article in that wages in China are rising and exports are declining, however a solution to this is not suggested. I believe that since excess aggregate demand is causing the global rise of inflation, I think that the government of Frankfurt should use deflationary fiscal policy by increasing taxes and lowering government spending. Another possible solution is to raise interest rates and to reduce the money supply. On the other hand, these actions may have been avoided since higher interest rates will harm the economy.