Should China choose to foat it's exchange rate freely, would you
advise the Chinese goverment to adopt a monetary expansion to
stimulate the economy if it weakens?  Comment on both the long and
short term outcomes. - Past exam paper, should take 40 minutes to
answer.  No references required.

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subsequent exam?

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For the Chinese government, it is best to float its exchange rate as
it has decided to do recently. This benefits China in both the long
and short term. China is an expanding and booming economy which has a
high labor force. As an industrially developed country, the Chinese
economy will keep improving in future years. "If the yuan appreciated
relative to the dollar, it would directly increase the U.S. price of
imports from China," Holtz-Eakin said. "However, those increases would
probably be much less than the appreciation of the yuan itself." He
noted that one study has estimated that 20 to 30 percent of the value
of exported Chinese goods represents the value created in China. At
the current time, the Chinese yuan is valued at 8 to 1 US dollar.
Before the free exchange of the Chinese currency, it was valued at 8.3
to 1 USD. Fluctuating and uncertainty are keys to the success of the
markets and will give better understanding to the will of the people
in a certain country. People will be better aware of their country?s
economy and the long-term growth that is in progress for them. Thus,
citizens are able to make better decisions with their money. With the
current trend, it is not necessary at the present time for the Chinese
government to take a policy of economic expansion. Nevertheless, if
the economy starts to take a downturn and really slump, it would be
best for the government to take on monetary expansion policies that
boost the economy. In the end, all economic policies and decisions are
just mere predications for what is to happen in the future. As we all
know, the future is unpredictable and cannot be controlled. We never
know what is in store of us in the future. Thus, we can only take
decisions that we believe will have benefits for us in the future. The
decision to have a floating exchange rate is a choice that the Chinese
government has taken and believes to be fruitful for them in the
future. As with all decisions, only time will tell.

Works Cited: 
http://www.washingtonpost.com/wp-dyn/articles/A55154-2005Apr14.html