Inflation is essentially the rise in general price of goods and services over a period of time in economics. It is more commonly referred to as price inflation in now. It can also be understood as the decline in the real value of money and consumer’s purchasing power. As inflation starts taking its toll, each unit of currency can buy less goods and services compared to what it used to. The primary measure of inflation is the “inflation rate” which represent, Beijing stood under immense pressure from all sides of the coin to raise prices.
China has been a victim of inflation in its own right and doubts had been raised by various sectors of the probable inability of the government to control inflation in the concurrent year. In the article chosen, Wen, assured of immediate policies and reforms to counter the aforementioned. Even though the government has increased the interest rates to level the impact inflation out but there is more that needs to be taken care of. China has been witnessing one of the fastest growth rates ever. It was 11.4 % percent in 2007 and it has targeted another 9% in 2008, a target which can be severely affected provided inflation due to food commodities are not dealt with the appropriate reforms and policies as pointed out by Wen. The Keynesian economic theory stipulates that money stands transparent to the real forces in economy. Inflation is most caused by various aspects of the economy translating themselves into higher prices. This is apparently what can be seen in China where high food prices have been the primary cause of inflation. The money supply has an important part to play in determining and chalking out precisely what level of inflation even though different economists have different opinions on the same. Keynesian theories focus more on the aggregate demand which keeps increasing in China owing to its huge population. Thus while, money may be an issue, it is just one of the issues in Keynesian economics.
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