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eate a lot of social security issues. Based on the stimulus package 2009-2010 for China’s, the government will use a big spending to develop the infrastructures and public facilities in rural, in order to attract more investor to invest in rural areas and create more job opportunity at there. This action can also solve the labor surplus problem in rural areas of China’s and increase income of citizen in rural areas to make rebalance the income inequality between citizen in city and rural areas.

Protect Export

The infrastructure development in rural areas can attract the investor from both domestic market and foreign market to make investment on that area. A setting up cost of production line in rural areas will basically more cheaply than the cost to setting up a production line in city areas. One of the disadvantages of setting up of production line in rural areas will be the transportation problems, but it seem can be solve by the railway and highway network that is going to build up under the stimulus package of China’s. A relative low of cost of production in rural areas will provide the pricing advantages of China’s product compare with the product from other countries. It can attract more buyers of China’s products and increase the export to other countries while China’s can also earn foreign currency from their trade surplus in international market. The huge amount of export from China’s to other countries will seem as an inflow of foreign currency or money into China’s market, and it’s the main sources of income for China’s to generating their economic activities and increase the income level of their citizen. In the same time, an sustainable amount of export to other countries implies that the production capacity surplus can be avoided to make sure the country economic continuing to develop.

Besides from the RMB 4 trillion stimulus packages, China government also announced tax waivers and reductions which benefit specific industries, such as reduced sales taxes for small engine car and incentive for rural households to buy electrical appliances aims towards global economic recovery.

Impact of Stimulus Package as Expansionary Fiscal Policy

Effect of from macroeconomic management by using fiscal policy as a tool has been widely debated, because there are many empirical studies find different and sometimes conflicting results. Keynesian argues that the fiscal spending multiplier is greater than one, while the neoclassical say it is less than one. Besides that, the multiplier also can turn negative under certain conditions. According to Capet (2004), the fiscal spending multiplier for the short-term is estimate from 0.6 to 1.3. Besides that, Al-Eyd et al (2004) find that the spending multiplier is usually larger than the tax multiplier.

China’s stimulus package creates additional demand on investment goods, growth in investment related production sector, current production and trade capacities which include capital, land, and labor. In fact, as production of more industrialized sectors start to grow, china’s household’s income and consumption also will increase, it will provide the market opportunities for those agricultural and service sectors that mainly produce for the local market.

In details, to increase supply for capital good production sector, demand for labor, capital, and intermediates will be increase to produce more