The Chinese Foundation Secondary School

S.3 Economics Mark: ______ / 30

Assignment 5 – Module 16 Role of Chinese government in the economy

Name : _______________________ Class / Class no.:___________ ( ) Date:__________

Section A: Multiple-choice questions (5 marks)

1. 2. 3. 4. 5.

1. Which of the following institutions is responsible for drawing up and implementing the development
strategies of finance and taxation of the PRC?
A. National Development and Reform Commission
B. State Council
C. Ministry of Finance
D. People’s Bank of China

2. Before the Reform and Opening-up, what is the way that the Chinese government mainly used to regulate
the economy?
A. Direct regulation
B. Indirect regulation
C. Business regulation
D. Common law

3. Which of the following descriptions about economic measures is incorrect?

A. They can also be called micro-economic regulations.
B. They are certain types of market driven policies.
C. Monetary policies and fiscal policies are examples of economic measures.
D. By adopting economic measures, the government exerts influences on the economic activities
through regulating some signals to influence market prices.

4. Which of the following is not a tool of monetary policy used by China for indirect regulation?
A. Exchange rate policy
B. Interest rate policy
C. Bank reserve ratio
D. Tax and expenditure policy

5. Which of the following statements about full employment is incorrect?

A. Controlling the unemployment rate within a low level.
B. Full employment refers to jobs available for all people who have the ability to work.
C. An unemployment rate of 4% is regarded as full employment in Europe.
D. Achieving full employment helps maintain social stability.

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Section B: Short Questions (7 marks)
1. State the important function related to making major economic policies of the State Council. (2 marks)

To prepare and implement the Plans for National Economic and Social Development and the Budgets.

2. Define administrative measures for regulating the economy. (2 marks)

By formulating policies, the administrative organs of the government issue commands (1) to interfere with
the economic activities of enterprises directly (1).

3. What are the three major objectives of the Chinese government in regulating the economy? (3 marks)

1 mark@: Price stability; (maintain) economic growth; (maintain) full employment.

Section C: Data-based questions (18 marks)

1. Study the source below carefully and answer the following questions. (6 marks)

(a) Describe the measure reflected in the source. (1 mark)

The Central Government reduces the bank reserve ratio to increase liquidity (1).

(b) Name the government institution in China that is responsible for implementing the measure shown in the
source. (1 mark)

The People's Bank of China.

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(c) What are the desired effects after the implementation of the measure shown in the source? Explain your
answer. (4 marks)
The central bank adjusts the bank reserve ratio to control the money supply indirectly (1). When the bank
reserve ratio reduces, the liquidity increases (1) as banks and financial institutions will have more funds
available for lending (1). This increase in available credit can stimulate economic activity by enabling
more spending and investment (1).

2. Study the sources below carefully and answer the following questions. (12 marks)
Source A: Adapted from Radio France Internationale dated 29 January 2021
In the face of the pandemic, it is expected that China’s Ministry of Finance would invest more than RMB2.5
trillion to ease the burden on enterprises. It would also introduce a series of measures as below:
First, it would provide small and micro enterprises with relief measures. Of the country’s more than 50
million small taxpayers, nearly 90% will be exempt from value-added tax and the tax rate will be reduced
from 3% to 1% for the remaining 6 million ones.
Next, it would assist the resumption of work and production of industries and enterprises in difficulty.
Among the industries affected by the pandemic, transportation, accommodation and service industries
would benefit the most from tax and fee reductions, with a total reduction of 38.2 billion yuan; and taxpayers
more affected by the disease would benefit from property tax and urban land use tax reduction, with an
accumulated tax reduction of 29.2 billion yuan.
Meanwhile, it would secure employment and people’s livelihood. In 2020, the targeted tax and fee reduction
policies and inclusive tax relief measures for small and micro enterprises helped reduce the operating costs
of enterprises and support their business. By the end of 2020, the tax burden ratio (the proportion of
enterprises’ expenditure on tax and social security fees to their sales revenue) on the sales revenue of
100,000 key tax-source enterprises nationwide is expected to record a year-on-year drop of 8%.

Source B: Adapted from an article from the People’s Bank of China

Interest rate is an important macroeconomic variable, and its liberalization is one of the core reforms in
China’s economic and financial sector. Since the reform and opening-up, China has been steadily advancing
interest rate liberalization to establish and improve the mechanism in which interest rates are determined by
market supply and demand, and the central bank has been guiding market rates with monetary policy
instruments. After over 30 years of continuous efforts, China has achieved remarkable results in its market-
based interest rate reform. A complete system of market-based interest rates has been formed, and the yield
curve has come close to a mature pattern, creating favorable conditions for enabling interest rate to play an
important role in adjusting the macro economy.

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(a) Based on the sources, determine whether each of the following sentences is True (T) or False (F). Write
a ‘T’ or ‘F’ in the spaces provided. (2 marks)

‘T’ / ‘F’
1. In response to the pandemic, the Central Government has introduced a tight fiscal policy. F

2. Interest rate plays an important role in adjusting the macro economy T

(b) Determine whether the following policies are monetary policy or fiscal policy. (2 marks)

Policy Type of policy

Reducing taxes Fiscal policy

Reducing fees Fiscal policy

Lowering the deposit reserve ratio Monetary policy

Printing more money Monetary policy

(c) With the aid of the example(s) from the sources, explain how the tax and fee reductions can stabilise the
economy during the epidemic. (4 marks)

Tax and fee reductions: Tax and fee reductions is commonly used by the Central Government to implement
a generous fiscal policy to help small and medium enterprises reduce their operating costs during
economic recovery (1). For example, the tax reductions for industries affected by the pandemic
mentioned in Source A (1) can help speed up the resumption of work and production (1). In addition, the
reduction of property tax and urban land use tax can reduce the financial burden on people (1).

(d) State the effects on the consumption and investment after increasing the interest rate. (4 marks)

In terms of consumption, the rise of interest rates will encourage savings (1) and discourage
consumption (1). In terms of investment, higher interest rates will reduce the total volume of profitable
investments (1) and reduce investment demand (1), filtering out projects with a low rate of returns.

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