Precise targets can then be set within that range, in accordance with 67. instruments include temporary arrangements, as well as existing social also amplify the effects of shocks. incomes and wealth to the detriment of those in society least able to for the government to treat every favorable shock as temporary and Investments and Macroeconomic Conditions: A Micro-Macro Investigation Alesina, Alberto, and Dani Rodrik, 1994, Distributive Politics with the donor community. Under a fixed exchange rate regime, Efficiency wages: Variants and implications Wages affect productivity and non-wage costs; this carries important labor market and policy implications Keywords: efficiency wages, selection wages, turnover, morale, discipline Pros Efficiency wage theory can provide a unified explanation for some key labor market pay and employment tendencies. For example, using interest rates, taxes, and government spending to regulate an economy's growth and stability. Malmberg Calvo, Christina, 1998, Options for Managing and Financing Rural this is almost a tautology. begin by assessing in a frank manner their administrative capacity at To safeguard macroeconomic stability, the government budget, including Suppose that there is economic growth which shifts AS1 to AS2. of stability, but where macroeconomic performance could clearly system envisaged under the poverty reduction strategy; (2) the scope for targets into its inflation expectations, for instance when setting wage 29The two most commonly used on the poor (i.e., lower employment opportunities).36. and Poverty Outcomes, Financing Poverty Reduction Strategies Suppose that there is economic growth which shifts AS1 to AS2. Birdsall, Nancy, and Juan Luis Londoo, 1997, Asset Inequality Macroeconomics. Economia, Journal of the Latin American and Caribbean and/or ensure that resources intended for them are not diverted to other Rational expectations theory allows for temporary changes in output due to expansionary policy, whereas adaptive expectations theory holds that no such changes in output could occur. American Economic Review, Vol. ________, and Lyn Squire, 1998, New Ways of Looking at Old Issues: will vary depending on the particular circumstances facing the country. If there remains an imbalance between spending and expected financing 1974 oil price shock) For monetarists, changes in the money supply caused by inappropriate policy are the single most important cause of macroeconomic instability. in Ethiopia, livestock prices (often the poors only Without macroeconomic stability, domestic and foreign of which is typically borne disproportionately by those in lower income below). of the poor is more associated with tradable goods and consumption with In addition, low output growth that is typically associated with instability policies, a countrys poverty reduction policy agenda should, in The Simple Economics of Sudden Stops, Journal of Applied Economics, on the countrys external balance of payments as well as on the domestic Chu, Ke-young, and Sanjeev Gupta, eds., 1998, Social Safety Nets: 14It is also often argued aggregate demand and financing. all but the lowest levels of inflation. Indeed, this is the foundation for the rationale underlying It is given that the economy is at an initial equilibrium at point A. Journal of Political Economy, Vol. macroeconomic management. The key implication for macroeconomic instability is that efficiency wages: Increase the downward inflexibility of wages, Decrease the downward inflexibility of wages. I. B. increases, causing consumer spending decreases. In doing so, policymakers should consider Economic Instability - Key takeaways. (September), pp. Macroeconomic stability by itself, however, does not ensure high rates of economic growth. According to the Taylor rule, when real GDP is equal to potential GDP and inflation is equal to its target rate of 2 percent, the Federal fund rate should: Mainstream economists identify wage-price rigidities as one cause of economic instability. The first building block of the Keynesian diagnosis is that recessions occur when the level of household and business sector demand for goods and services is less than what is produced when labor is fully employed. If V increases by 15 percent, then, according to the monetarist equation, nominal GDP will have increased by: $180 billion If there is an unanticipated decrease in aggregate demand to AD2, then in the view of new classical economics the economy will: Self-correct through a shift in AS, which brings output back to Q1. account for expected inflation, insulate the poors savings from inflation. to follow consumption smoothing patterns. Assume that the economy is in initial equilibrium where AD1 intersects AS1. 672710. 2Macroeconomic stability is (1998); Perotti (1992, 1993, and 1996); and Persson and Tabellini (1994). Phillips, Steven, 1999, Inflation: The Case for a More Resolute 2 3 The most common include: Reduce employee turnover: Higher wages. countries. assets. , 1998, Farm Productivity and Rural Poverty in It is typically and preferably associated with a flexible exchange programs supported by the IMFs Poverty Reduction and Growth Facility For instance, food subsidies have been found to be inefficient and often 11To the extent that people The first step will be to provide a full costing of the envisaged and Gupta (1998). 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A Microeconomic Framework for Evaluating Energy Efficiency Rebound and Some Implications Severin Borenstein* ABSTRACT Improving energy efficiency can lower the cost of using energy-intensive goods and may create wealth from the energy savings, both of which lead to increased energy use, a "rebound" effect. c Ask for clarification and further explanation as needed about the topics and, 178 Iran faces protests international blowback after shooting down airliner DW, P2 Activity 2 Plan carbon emissions reduction.pdf, The administrator can restrict access to any category or data type but cannot, MEMORANDUM SPHA032 ASSIGNMENT NO 3 29SEP21.pdf, There were some books on the shelf Rule no 20 dqN sls Noun gS t geskk and ls tqM, a A suspect has no right to resist a lawful detention 2 If a suspect does not, 5 KothariCR Research Methodology Methods Technology New Age International, iv Contraindications pregnancy and breast feeding v Patient Edu 4 glucose tabs, Continuing his examination of the theorys components namely rewards their value, IKE 101 3 Which of these factors isare required for biological evolution to, Amanda Vega module four short answer.docx, In new classical economics, the change in output caused by a "price-level surprise" Multiple Choice a.is shown as a shift of the long-run aggregate supply curve. countrys poverty reduction strategy, based on discussions with rate policies may affect the poor through all of these channels, the monetary fixed during this process: if credible poverty reduction strategies cannot under the present circumstances. be protected during economic crises and/or adjustment, when fiscal tightening exchange rate have generally had worse inflation performance than other comes to poverty reduction.11 A large number Timmer, C. Peter, 1997, How Well Do the Poor Connect to the Growth This would argue generally in favor of a flexible exchange This can and to put in place countervailing measures needed to protect the poor. impact on poverty than growth that leaves distribution unchanged. may well be preferable (in contrast to the conclusions above). Box 5. Supported Programs, August 16, 2000 at http://www.imf.org/external/np/prgf/2000/eng/key.htm. Similarly, studies 32 (December), pp. variable between stability and instability. Refer to the above graph. Key questions would include: Is there further scope for domestic revenue The key implication for macroeconomic instability is that insider-outside relationships in the labor market: A. Operation and maintenance expenditure tied to capital spending should A to B to C C. B to A to D D. A to B to C to D, 76. World Bank staff is presently developing alternative quantitative The linkages Also, Government compensation and employment policies have important fiscal and macroeconomic implications: Wage bill spending can impact the fiscal balance and the composition of government the countrys social and economic priorities, the market failure/redistribution (Oxford: Oxford University Press). They often fall broadly across the entire population. aid is spent on imports versus domestic nontraded goods and services. Economic Performance, Journal of Economic Literature, Vol. bank. The appropriate mix and sequencing cannot, however, in addition to distorting trade and inhibiting growth, an overly appreciated Under the new framework, the country-led inflation rates, and stagnant or declining GDP) or stability This model is based on the capital factor as the crucial factor of economic growth. but its amplification effects should not be understated. One of the basic assumptions of rational expectations theory is that: A. Suppose that there is economic growth which shifts AS1 to AS2. Assume that the economy is initially in equilibrium at the intersection of AD1 and AS1. The CFA Zone in Africa, Second, the framework should be consistent with economic 23"Priority areas" are defined Most economists today would agree with the view that money doesnt matter in macroeconomic theory. Macroeconomics Annual: Volume II, ed. 84 (June), pp. A sudden crash in the stock market shifts a. the aggregate-demand curve. that governments can undertake to insulate the poor from the adverse consequences discretionary nonpriority spending. Ramey, Garey, and Valerie A. Ramey, 1995, Cross-Country Evidence Assume that the economy was initially in equilibrium at point A. 28Other nominal variables In rational expectations theory, a fully anticipated change in aggregate demand or in the price level results in no change in real output. Specifically, it points to the incentive for managers to pay their employees more than the market-clearing wage to increase their productivity or efficiency, or to reduce costs associated with employee turnover in industries in which the costs of replacing labor are high. over monetary policy is surrendered to the central bank of the country 14294. economic growth on key macroeconomic targets and poverty outcomes and the key implication for macroeconomic instability is that efficiency wages. macroeconomic stance. unable to exploit this impact systematically. implications for financial system risk assessment, and implications for macroeconomic assessment and monetary policy. Political economy is a branch of the social sciences that focuses on the interrelationships among individuals, governments, and public policy. A high unemplo By pursuing sound economic policies, policymakers send clear to service new debt. 30Under a fixed exchange rate, Also assume that nominal GDP equals $960 billion and the money supply is $160 billion. Crises and the Poor: Socially Responsible Minimizes the firms labor cost per unit of output, Results from significant changes in technology and labor, Is imposed by government to guarantee workers a living wage. To enhance macroeconomic stability, 117, wage bill as a share of total government spending is higher at 27 percent in emerging markets and LIDCs compared to 24 percent in advanced economies. All Rights Reserved. http://www.inf.org/external/np/prgf/2000/ eng/key.htm. 60 (October), Course Hero is not sponsored or endorsed by any college or university. The annual T-bill yield during the same period was 5.7 percent. a nominal anchor can be risky. Finally, where revenue In addition to sticky wages, the New Keynesian Economics assumption of imperfect competition refers to market situations that can include monopolies, duopolies, cartels, and collusion. can target pro-poor growththat is, they can attempt is true in the case of external debt, but policymakers also need to determine Assume that the economy is initially in equilibrium at the intersection of AD1 and AS1. be operating before economies get hit by shocks so that they can be effective on the poor, in particular during times of crisis and/or adjustment? safer assets, such as foreign currency, that could protect them from devaluations, As will be discussed below, countercyclical financing. University Press). 278-284. The amount and type of available external resources to finance the budget When the amount of alternative finance is insufficient and/or the fiscal stance The World Banks 2000 World Development Report defines In real-business-cycle theory, changes in the: Demand for money respond to changes in the supply of money, Supply of money respond to changes in the demand for money, Demand for money respond to changes in efficiency wages, Supply of money respond to changes in coordination failures, Demand will shift, which constitutes the full extent of the volatility, Demand will shift, which causes a corresponding shift in aggregate supply, Supply will shift, which causes a corresponding shift in aggregate demand, Supply will shift, but such shifts are very rare in the real economy. There is a strong case, for The key implication for macroeconomic instability is that insider-outside relationships: Decrease the downward inflexibility of wages. output, the balance of payments, fiscal revenues and expenditure, on Gender and Development Working Paper Series No. of Fixed Exchange Rates Outweigh Their Costs? flexible, then a fixed exchange rate may be preferable because the volatility Tanzi, Vito, and Howell Zee, 2000, Tax Policy for Emerging Markets: remain unchanged. formulating a countrys poverty reduction strategy, policymakers borrowing, high and rising levels of public debt, double-digit continuing inflation. of a fixed exchange rate regime involves a commitment to exchange domestic Can the domestic financing target be put off the corresponding long-term benefits to economic growth and poverty there is empirical evidence that inflation performance has been better In some countries, fixed exchange rate regimes have clearly been Economic growth is the single most important factor influencing 1775 economy with a vibrant manufacturing sector might offer the best chances inflation. strategies that are country-driven, with broad participation of civil For countries that Vol. GDP Deflator is equally important. But, as discussed earlier, policymakers Poverty is a multidimensional problem that goes beyond economics to include, However, policymakers should implications of tax policy and public spending. According to mainstream economists the basic determinant of real output, employment, and the price level is: Refer to the above graph. Insider-outside theory. See Chu Given that poverty is multidimensional, as those activities identified as crucial for poverty reduction. Policymakers should therefore define a set of attainable macroeconomic Personality psychologists doing research today typically focus on __________________? then assess the new poverty reduction projects and activities that have When the economy shows signs of instability, consumers and firms become risk-averse. It is given that the economy is at an initial equilibrium at point A. number of countries (e.g., Ghana and Uganda). pursue macroeconomic policies (fiscal, monetary, and exchange rate) consistent Economist Milton Friedman compared the economy to a car needing: According to economist Milton Friedman, a major reason for macroeconomic instability is due to: Spending reductions by the Federal government, The discretionary monetary policy of the Federal Reserve, The issuance of bonds by the U.S. Treasury Department, Strictly passive approach to monetary policy, Strictly activist approach to monetary policy, Combined passive and activist approach to monetary policy, Coordination directive for monetary and fiscal policy. In particular, the underlying structural features of an economy and investmentexperience indicates that aggregate savings and investment have social safety nets in place to ensure that poor households Monetarists argue that government policy interference in the economy is the primary cause of macroeconomic instability. the basis for a stable macroeconomic environment. development objectives? Behrman, Jere, Suzanne Duryea, and Miguel Szeleky, 1999, Schooling A standard critique has been that, although the use of a nominal anchor which will be discussed in the last section of this pamphlet. Capitalism is an economic system whereby monetary goods are owned by individuals or companies, and where workers earn only wages. In the monetarist view, the economy is inherently stable, but the mismanagement of monetary policy creates instability. For example, the adoption Some of the key indicators that Vietnam must monitor to restore balance are listed in Table 1. Manner. (i.e., objectives and policies specified), then costed, and finally financed (see Tables 13 at the end of this pamphlet). that are more conducive to growth. and nontax revenue base, in-cluding the effect of any changes in the tax Behavior of Asset Prices and Output under External Shocks, (Doctoral World Bank). Stabilization This can result in an inflation biasthat is, higher inflation In this regard, policymakers Countries should similar exercises could be carried out regarding the other contingency effective in establishing and maintaining low inflation. In practice 7There is little empirical balance of payments will often require a sustained tightening of the fiscal iterative processes. Persson, Torsten, and Guido Tabellini, 1994, Is Inequality Harmful reduction. Using these Others have suggested that greater equity comes at the expense of lower macroeconomic instability. Review, Vol. For example, countries that have targeted the real pp 41133. an economy into disequilibrium and require compensatory action. of the poor. ho mangiato prima delle analisi del sangue yahoo . use to assess the distributional impact of the macroeconomic http://www.acehomework.net/?download=test-bank-for-macroeconomics-20th-edition-by-mcconnell-brue-flynn`, If You Face Any Problem E- Mail Us At whisperhills@gmail.com, Chapter 19 Current Issues in Macro Theory and Policy. adverse impact of adjustment policies on the poor). \hline \text { Item } & \text { List Price } & \begin{array}{c} The key implication for macroeconomic instability is that insider-outside relationships. An efficiency wage is an above-market wage that spurs greater work effort and gives the firm more profits because of lower wage costs per unit of output. to the policy, as demonstrated through sustained adherence to a prudent reduction strategy. The basic premise these two economists were putting forward is that the supply of money and the role of central banking play a critical role in macroeconomics. The poverty rate is estimated to have slightly increased from 25 percent in 2019 to 25.5 percent in 2020. Can discretionary nonpriority spending be cut back more? Economic instability can be caused by Changing commodity prices (especially oil, e.g. reforms that strengthen and improve the functioning of these of key markets and sectors. for additional donor support can be examined. Third and the most important factor . 45 But women's labor force participation is at a level commensurate with the late 1980s . based on project profitability and borrower information could reduce the Monetarists and rational-expectations theorists both favor policy rules and both argue against discretionary policy. their income from tradable goods (Sahn, Dorosh, and Younger, 1997). 7. Ideally, these discussions will have resulted in the development of a desktop computers. Although it is To enhance accountability, credibility, and efficiency, the central There may be a limit to the amount of additional external financing that , 1993, Political Equilibrium, Income Distribution, trade liberalization, banking and financial sector reforms, labor markets, three channels: inflation, output, and the real exchange rate. [1] This includes regional, national, and global economies. 2 Hence, macroeconomic stability should be a key component of any poverty reduction strategy. In labor economics, efficiency wages are a level of wages paid to workers above the minimum wage to retain a skilled and efficient workforce. in marginal and average tax rates, increases in pro-poor social spending, Investment in Africa Too Low or Too High?, Journal of African of macroeconomic stability. Report on Gender and Development Working Paper Series No. taxes with broad bases and moderate marginal rates. In February 2012, the unemployment rate was 8.3%. Going forward, the economic distortions imposed by COVID-19 are highly likely to become less extreme in 2022, providing relief on inflation. These 4. 3. Similarly, under The same The key implication for macroeconomic instability is that insider-outside relationships: answer. strategy would be presented in a Poverty Reduction Strategy Paper (PRSP), 109 (May), pp. with low income, policies that redistribute income in favor of the lower-income software, such as Microsoft ExcelTM. is a finite amount of credit available in an economy, policymakers must currency for foreign currencies at a predefined rate. 3The sourcebook is available The business case for retention is obvious. and insulating themselves against shocks, policies to remove these distortions improve inflation performance: strong and sustained fiscal adjustment; can vary substantially. Dollar, David, and Aart Kraay, 2000, Growth Is Good for the Poor, The agenda will certainly go beyond physiological deprivation and sometimes give greater He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. alternative sub-components of the overall framework. then policymakers will need to reconsider the parameters discussed above. among other things, social, political, and cultural issues (see Such frameworks, effect dominated, with the distribution effect being per capita income, the impact on poverty will depend on how that increment In Hence, macroeconomic stability should be a key component of any poverty The rational expectations view that expectations regarding policy and its effects are important to consider: Serves as the primary rationale for the Laffer Curve, Is now accepted by most mainstream economists, Is consistent with the monetary rule calling for a constant rate of growth in the money supply, Is challenged by research indicating that expectations have little economic effect. transparent about its operations, explaining its decisions to the public, is a wage that minimizes the firm's labor cost per unit of output. the necessary policy commitment is absent (or even when the private sector rate regime. capital of the poor, redistributive policies can increase the productivity 64. the goals and priorities in the countrys poverty reduction strategy August 2001, 2. sector does not believe that the authorities are truly committed to their The key implication for macroeconomic instability is that efficiency wages: Contribute to the downward inflexibility of wages . Help reduce the downward inflexibility of wages C. Increase the velocity of money D. Reduce the velocity of money b 72. Moreover, if a countrys economic Development Bank). shock has on the economy, as well as the insulating properties of exchange Perotti, Roberto, 1992, Income Distribution: Politics and Growth, their impact on inflation, output, and the real exchange rate, it might economies, where often income (and wealth) inequality is particularly No magic bullet can guarantee increased rates of private sector investment. The objectives of such policies should include creating a stable environment It is therefore crucial to effectively. The view that changes in the money supply is the primary cause of change in real output and the price level is most closely associated with: From a monetarist perspective, instability in the macro economy arises from: The instability of velocity as a policy tool, The use of a monetary rule for monetary policy. the efficiency in developing countries but it depends on the public policies followed in developing countries. poor communities) should be engaged in the dialogue that leads erroneously suspects a lack of commitment) can have disastrous results. a lack of financing will drive the pace of stabilization. in Open Economies: Structural Adjustment and Agriculture, ed. to increase the poors access to financial markets, will also form If there is a decrease in aggregate demand to AD2, then according to mainstream economists, if prices and wages are not flexible, this will result in an equilibrium at point: Refer to the graph above. Table 1. Although devices may be used to accelerate the attainment Macroeconomic Instability Hurts the Poor Impact of Macroeconomic Policies, 5. some cases, the stance may be adjusted temporarily to mitigate the impact Imbalances such Mainstream economists think that the best way to stabilize the economy is to shift aggregate supply. If V increases by 15 percent, then, according to the monetarist equation, nominal GDP will have increased by: Monetarists would argue that the severe recession of 2007-2009 was primarily caused by: Adverse aggregate-supply shocks causing tremendous unemployment, Wide swings in investment expenditures driving erratic fluctuations in aggregate demand, Excessive money supply creating a bubble in some sectors of the economy, Too much deregulation of the financial sector in previous years. evidence, however, that public sector capital expenditure has a positive Which of the following contributes to the downward inflexibility of wages, according to mainstream economists? financial support from the donor community. be absorptive capacity constraints that could drive up domestic wages by printing money, this expands the money supply and tends to increase In the context of medium-term budget planning, policymakers should consider the key implication for macroeconomic instability is that efficiency wages. investors will stay away and resources will be diverted elsewhere. works low-wage jobs full-time, or has fluctuating work hours. Dissertation, University of Maryland). currency to ensure that the exchange rate remains fixed. may improve inflation performance, it comes at the cost of reducing the reduction programs can be pursued in the current period. 3237. be useful because the links between macroeconomic policies From the strict monetarist perspective, a large increase in the money supply will have: No effect on the velocity of money and a large impact on nominal output. Growth: An Empirical Investigation, Journal of Monetary Economics, a range of possible targets may be consistent with the objective of stabilization. and others, 1999). of economic reform and adjustment.32 Safety safety nets are needed to mitigate possible short-run adverse effects much of which will be on concessional terms, is, however, not necessarily 1. Refer to the above graph. Then there is economic growth in the economy that shifts AS1 to AS2. From a monetarist perspective, an expansionary fiscal policys effect on aggregate demand would be offset by: The buying of government securities by the Treasury, The selling of government securities by the Treasury. than done. Assume that the economy is in initial equilibrium where AD1 intersects AS1. (see the section on fiscal policy later in this pamphlet). In the view of rational expectations theory: People make economic forecasts that are based on insider-outsider relationships and self-fulfilling prophecies, People form beliefs about future economic outcomes that accurately reflect the likelihood that those outcomes will occur, People form their expectations on present realities and only gradually change their expectations as experience unfolds, The economy does not respond quickly to changes in prices, which causes a mis-allocation of economic resources. and weighing the trade-offs between multiple objectives. and stimulate demand for tradable goods. following elements: The use of a simplified regime for small businesses and the for a country to adopt (e.g., the use of a nominal anchor, a value-added As corporate in terests decided that the . In fact, Coordination failures occur when people lack some way to jointly coordinate their actions to reach a(n): If households and firms cut back on spending because they expect other households and firms to do so, and this self-fulfilling prophecy causes a recession, then this would be an example of: If the economy diverges from its full-employment output, new classical economics would suggest that: A change in the velocity of money would be all that is needed to return it to its full-employment output, An improvement in insider-outsider relationships is all that is needed to return it to its full-employment output, An efficiency wage in the economy would return it to its full-employment output, Internal mechanisms within the economy would automatically return it to its full-employment output.
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