However, the proportion of investment to GDP remains relatively unchanged, during the period of higher economic
growth. The service sector in China is growing exponentially, which is not accounted for while calculating the GDP and the sector plays a crucial role in Chinese economy. Consistently high investment rate in China implies high rates of domestic saving which are exceptional not only by international standards, but more particularly for an economy at China’s level of per capita GDP.
Gross domestic product is the total value of new goods and services produced in a given year within the borders of a country, regardless of by whom. It is "gross" in the sense that it does not deduct depreciation of previously produced capital, in contrast to Net domestic product. There is two ways of calculating GDP, i.e., Income approach and expenditure approach. The income approach takes into account the income earned by the citizen. Sometime it is more important than GDP if a country has much foreign direct investment and many foreigners work in the country.
Although about 70% of its population lives in the rural area, China’s economic growth depends very much on the rapid expansion of manufacturing and service sector rather than on the agriculture, except for the earlier phase of the 1980s. The value added of industrial sector has accounted for 45% of China’s GDP, while that of agriculture only about 10% and still declines. This gives rise to growing rural urban income disparity. The inequality within China has had mainly spatial dimensions, in terms of growing income and consumption inequality between rural and urban areas as well as across regions.
Aggregate demand curve is the graph of quantity demanded as a function of price, normally downward sloping, straight or curved, and drawn with quantity on the horizontal axis and price on the vertical axis. In macro economy, aggregate demand curve indicates the various quantities of goods and services that purchasers are willing to buy at different price levels. The aggregate is negatively related to price. The inverse relationship between price and the amount demanded of a specific commodity, reflects the fact that consumers turn to substitutes when a price increase makes a good more expensive. The aggregate demand curve is downward sloping because of wealth effect on the consumption, interest rate effect on investment and the exchange rate effect on the net export. The aggregate supply curve reflects how the price is determined given the aggregate demand to aggregate capacity. The short-run aggregate supply curve indicates the various quantities of goods and services that firms will supply at different price levels during the period immediately following a change in the price level. The aggregate supply curve is upward sloping because with an increase in output the price or inflation rate will increase. Changes in aggregate demand cause the curve to shift outward (to the right) or inward (to the left). Changes in aggregate supply cause the curve to shift outward (down) or inward (up).
Meanwhile increase in output also indicates the increase in employment and thus the decrease in unemployment rate. The unemployment is an important problem of micro economic theory which is calculated by the ratio of unemployment to the total labour force. There is a significant relation between