After you have studied Economics in the News on pp. 602–603, answer the following questions.

a. Distinguish between economic growth and recovery from recession and identify two years in Fig. 1 when China was recovering from recession rather than growing faster.

b. Over which years did China’s growth rate of potential GDP increase, what were the high growth rate years, and when did growth begin to slow?

c. At its peak growth rate, how many years did it take for China’s real GDP to double?

d. What did the government of China do in 2008 to avoid recession in the global financial crisis?

e. Why did China’s growth rate slow down despite an increase in investment?

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In 1978, under the leadership of Deng Xiaoping, China em- barked on a program of economic reform. Gradually, state-owned monopolies were replaced by private competitive businesses, often financed by foreign capital and operated as joint ventures with foreign firms. By the early 1980s, China's economy had opened to rapidly expanding international trade and its real GDP was growing at the fastest rate in the world, and at the fastest rate ever known. Figure 1 shows the growth rate of real GDP since 1970 and our estimate of the growth rate of China's potential GDP. Note the increase in the growth rate of potential GDP (the red line) from around 6 percent per year during the 1970s to 10 percent per year through the next three decades. This extraordinary growth came from a high and rising level of investment. Real GDP growth rate (percent per year) 16: 00 Potential GDP Real GDP 1980 1990 1970 Year Figure 1 China's Real GDP Growth Rates 2000 2010 2020