From the WSJ Journal-in-Education Program:  

 

SUMMARY: Geithner said he believed Chinese leaders are confident in the U.S. economy, and praised China's own stimulus measures.

CLASSROOM APPLICATION: This article highlights the relationship between the Chinese and U.S. economies. If China looses confidence in the U.S. economy it may curtail purchasing U.S. government debt which would lead to higher interest rates. Another interesting point for discussion is China's currency policy. Why is the U.S. urging China to adopt a more market-determined currency policy? How would movement toward a freely-floating currency impact the U.S. and Chinese economies?

QUESTIONS:

1. Why does it matter that Beijing has confidence in the U.S.?

2. How would the Chinese economy be affected if the Fed fails to keep inflation low and Congress fails to bring budget deficits down over time? Use the Large open Economy Mundell Fleming Model

3. What is China's role in (de)stabilizing the international financial system?

4. What is China's current currency policy? What changes is the U.S. urging China to make to its currency policy? What impact would those changes have on the U.S. and Chinese economies?