Supply — practice question

In 2014, world Gross Domestic Product (GDP) amounted to US$78000 billion. One year later, it had risen to US$80730 billion. In earlier years, countries such as the USA and Germany may have been thought likely to make the biggest contribution to growth in GDP. China represented 20% of the rise in world output in 2015. China is expected to become the largest economy. It is becoming a more powerful rival in several markets. This stronger price competitiveness results from a range of factors, including keeping the exchange rate low, giving subsidies to a number of industries and improving labour productivity. However, in 2015 the Chinese Government was thinking about whether to shrink the country’s steel industry, perhaps by reducing the subsidy it received. Fig. 1 illustrates how the steel market could be influenced by such a change. Some developed countries have recently been facing difficulties. For instance, Australia has experienced a decline in its economic growth rate. In an attempt to raise domestic economic activity, the Reserve Bank of Australia has lowered interest rates. The economic growth rates of developing and emerging economies are rising. In Africa, this is partly due to the discovery and use of oil and mineral resources. These countries use different exchange rate systems and have different levels of success in attracting multinational companies. Many African countries use protectionist policies, although some are shifting towards free trade. In most developing and emerging economies, the birth rate is falling. The effect of this shift depends on how large the decline is. For example, Nauru is one of the smallest countries in the world and has a population of only 10000. Its birth rate dropped from 26 to 25 in 2015.