Teaching Comparative Government and Politics

Wednesday, June 04, 2014

Reviewing fiscal policy

As you think about fiscal policy, remember it's not just the US' Federal Reserve that practices expansionary policies. Review what you know to see if the Chinese policies make sense.

Reserve ratio cuts to tackle slowdown
The central government will not shift its policy direction amid the economic slowdown, but will intensify targeted financial easing in coming months, the State Council said in a statement on Friday.

The statement, which followed an executive meeting of the council, said the government will strengthen the "targeted reduction" of the reserve requirement ratio - the amount of money banks have to set aside as reserves…

In April, China cut the reserve requirement ratio for rural banks by up to 2 percentage points, but did not reduce the ratio across the board.

The ratio for large financial institutions is 20 percent and it is 16.5 percent for smaller ones. Many economists believe the ratio is too high to release sufficient liquidity to spur the slowing economy…

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