A Chinese Experiment. In 2000 the Chinese government mandated three 1-week holidays throughout the year to stimulate consumer spending. The idea was that these extended vacations would induce the...

A Chinese Experiment. In 2000 the Chinese government mandated three 1-week holidays throughout the year to stimulate consumer spending. The idea was that these extended vacations would induce the Chinese to spend more of their earnings while on vacation.

a. Using the AD–AS framework, show the mechanism through which the Chinese government believed that the mandated holidays would stimulate the economy.

b. Although consumption spending rose during the vacation period, the data show that consumption fell before and after the vacation. Did the policy work?