ABSTRACT
There is very little research attempting to apply the Keynesian framework (new or old Keynesian models) to China’s economic policies. The next chapter, however, shows that in times of economic downturn, China has decisively turned to Keynesian solutions (as has the United States). In addition, we suggest that, during periods of greater stability, China has viewed fiscal policy as mainly investment policy and a tool for economic growth (i.e., supply-side management). Although published in 1936, Keynes’s General Theory of Employment, Interest, and Money was not translated into Chinese until 1957; it was initially banned in China for being too pro-capitalist (Cox, 2011). In this chapter, we will examine the special case of China using the investment-savings/liquidity-money demand (IS/LM) framework and aggregate demand and supply framework. This is a very useful heuristic device for understanding the constraints and opportunities of an emerging economy (such as China’s). Later examples, more complex versions of the IS/LM framework, are more appropriate for advanced economies (such as that of the United States) and the China of the future.
