The Ph. D. Liu is from the Institute of Economics under Chinese Academy of Social Sciences. The basic goal of macro-economic adjustment and control of China for the year of 1995 was to bring the inflation rate under 15 percent. Adjustment and macro control in the last two years and continuing implementation of macro policy of tightening in the first three quarters of 1995 was expected to bring the inflation rate from 24 percent of 1994 down to around 16 percent in 1995. Compared with 1994 the range of decline is quite significant. The efforts to control the inflation rate to this level are fairly impressive and the achievement is great. The question now is why the latest cycle of inflation lasted so long and the inflation rate stayed at such a highlevel and after three years of adjustment and control was finally brought to a level which is only over 2 percentage points below the level reached by the end of 1988. If the trend will continue this way how will the inflation rate look like in 1996 and1997.
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