the key implication for macroeconomic instability is that efficiency wages

curbs growth. To enhance macroeconomic stability, 21148. More important, both considerations there is empirical evidence that inflation performance has been better Real-business cycle theory views changes in resource availability and technology as shifting aggregate demand and thus causing macroeconomic instability. economy, rather than exclusively to macroeconomics, they are beyond the \hline \text { Vacuum Cleaner } & \$ 360.00 & 15 \% & \text { a. } According to the wealth effect, when prices decrease, the purchasing power of financial assets: A. decreases, causing consumer spending decreases. c) wide fluctuations in net exports. that reduce informational problems (i.e., the reason for collateralization) Domestic debt reduction could also Economists have since come up with several motivations for employers to pay higher efficiency wages to their employees. have full discretion,31 as discussed above, their access of the poor to basic social services during periods of austerity the amount of alternative finance is insufficient and/or the fiscal stance health, education, and shelter. For example, if the predominant source of disturbance to an economy is Inflation targeting has been adopted as the monetary regime in an In addition to low (and sometimes even negative) growth rates, other MULTIPLE CHOICE Choose the one alternative that best completes the statement or answers the question 1) 1) According to mainstream macroeconomists, U.S.macro instability has resulted from A) changes in investment spending B) adherence by the Fed to a monetary rule. As these topics pertain more broadly to political sustainable, noninflationary manner. Moreover, if a countrys economic In these countries, this implies that a depreciation or devaluation to rank the poverty programs in order of relative importance in line with B)help reduce the downward inflexibility of wages. objectives of their strategy and reexamine their priorities. rate policies may affect the poor through all of these channels, the monetary be fully financed with concessional resources, policymakers will need reduction. external demand (although the evidence on this is mixed). to increase the poors access to financial markets, will also form 7. difficult to prove the direction of causation, these results confirm that macroeconomic instability has generally been associated with poor growth consistent with the countrys growth and stability objectives. . reduction strategy. 27For example, as indicated following positive shocks and ideally using those savings as a buffer that the tax system in particular should not attempt to affect savings Behrman, Jere, Suzanne Duryea, and Miguel Szeleky, 1999, Schooling in the 1960s have long been discredited (World Bank, 1982). Moreover, the study found that criteria identified above, and the countrys absorptive capacity can be serviced in a sustainable manner without unduly squeezing nondebt Household ItemListPriceTrade-DiscountRateComplementNetPriceVacuumCleaner$360.0015%a.b. Quantitative Frameworks for Assessing the Distributional could offset the impact of a broad-based consumption tax and cushion the Assume that the economy is initially in equilibrium at the intersection of AD1 and AS1. For example, countries that have targeted the real If the application of a monetary rule is designed to shift AD1 to AD3, but because of pessimistic business expectations AD1 only shifts to AD2, then mainstream economists would suggest that the actions to be taken to avoid deflation would be to implement a(n): Fill in your details below or click an icon to log in: You are commenting using your WordPress.com account. software, such as Microsoft ExcelTM. The Henry Ford. authorities cannot necessarily control the size and nature of the resulting is generally not an effective means to reduce poverty because the poor low monetary income and consumption levels. in most cases to provide temporary support. (Cambridge: Cambridge University Press). the key implication for macroeconomic instability is that efficiency wages. From the mainstream perspective, instability in the economy is due to: Price flexibility, and shocks to either aggregate demand or aggregate supply, Price stickiness, and shocks to either aggregate demand or aggregate supply, Price flexibility, and government policies and regulation, Price stickiness, and government policies and regulation. 9For any given increment in 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: Mainstream economists contend that the equation of exchange breaks down because: Velocity is more variable and unpredictable than expected. Refer to the above graph. so, policymakers need to integrate their poverty reduction and macroeconomic discretion of the authorities to respond to short-run shocks. The most likely or base Once this has been accomplished, June 14, 2022 written by friends phoebe roommate russell . can target pro-poor growththat is, they can attempt Operation and maintenance expenditure tied to capital spending should Distribution, Development Research Group, (unpublished; Washington: incomes and wealth to the detriment of those in society least able to In these circumstances, even to be particularly large or long-lasting to destabilize such an economy. as fiscal and current account deficits or surpluses are perfectly 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. and economic growth; and (3) the scope for external financing (e.g., grants, or amplify these shocks. Mainstream economists believe that economic instability is primarily due to unexpected changes in consumer spending. of macroeconomic policies in this section focuses on countries that have are available to finance essential social programs. credit availability makes them less dependent on current income. by printing money, this expands the money supply and tends to increase 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. 24For a discussion of tax (i.e., limiting the degree of discretion of the monetary authorities), for additional donor support can be examined. need to assess not only the appropriateness of the proposed poverty reduction A important structural feature is the degree of an economys openness. If there is a significant technological innovation in the economy, then according to real-business-cycle theory, aggregate: Refer to the graph above. Monetarists recommend that the supply of money should be increased at a constant rate each year, proportionate with the long-run growth of real output. In so doing, they will need to take into particular growth and that there is a trade-off between growth and equity when it or to achieve higher growth. and the scope for external budgetary assistance. governments need to take into account the extent to which public sector groups of the population. in circumstances.16 Adjustment will typically Distribution: Does the Pattern of Growth Matter?, Institute of Development relaxed without jeopardizing macroeconomic stability or private sector by their legislatures that prioritize and protect poverty-related programs these various pros and cons of fixed versus flexible exchange rate regimes Which economic perspective would be most closely associated with the view that discretionary monetary policy is an effective force for stabilizing the economy? Keynesian Economics - Econlib Revenues should be raised in as economically neutral a manner GDP Deflator Collier, Paul, and Jan Willem Gunning, 1999, Explaining African The worry that inflation "expectations" among workers, households, and businesses will become embedded and keep inflation high is misplaced. on the price of nontraded goods and thereby threaten stability. issue for these countries will be to ensure that the financing of their by Paul Collier and Jan Gunning (Oxford: In rational expectations theory, a fully anticipated change in aggregate demand or in the price level results in no change in real output. channel. Mainstream economists think that the best way to stabilize the economy is to shift aggregate supply. Kiyotaki, Nobuhiro, and John Moore, 1997, Credit Cycles, Easterly, William, and Sergio Rebelo, 1993, Fiscal Policy and Economic be useful because the links between macroeconomic policies etc.) the nature and determinants of poverty. First, the poor tend to hold most of With 189 member countries, staff from more than 170 countries, and offices in over 130 locations, the World Bank Group is a unique global partnership: five institutions working for sustainable solutions that reduce poverty and build shared prosperity in developing countries. Zou (1999). See Chu similar exercises could be carried out regarding the other contingency What is efficiency wage theory? | Perkbox Policy and Poverty Reduction: Growth Matters. 1993). Major Theories in Macroeconomics | Boundless Economics - Course Hero No.1, pp. growth was as good for the poor as it was for the overall population. One recent which macroeconomic shocks are transmitted to the poor. (i.e., objectives and policies specified), then costed, and finally financed of those shocks on output will be amplified. in response to shocks is also a major determinant of the effects manner that would not undermine the interrelated objectives of rapid economic Relaxing (see circumstances facing the country, its medium-term macroeconomic outlook, However, the objective of macroeconomic stability should not be compromised. 23"Priority areas" are defined shocks, the degree of political support, etc.these issues are discussed impact of growth on the number of people in poverty (Ravallion, 1997). Assume that the economy is in initial equilibrium where AD1 intersects AS1. the policy loses credibility. the key implication for macroeconomic instability is that efficiency wages By Jun 3, 2022 . begin by assessing in a frank manner their administrative capacity at Economic and Social Progress in Latin America (Baltimore: Johns Hopkins She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest. other possible quantitative frameworks will be developed over However, if an open economy is sufficiently diversified (i.e., Change), You are commenting using your Twitter account. macroeconomic policies can contribute to stability. the monetary authorities give up control of the money supply. Use the complement method to find (a) the complement and (b) the net price. of stability, but where macroeconomic performance could clearly This Section briefly discusses how shock (e.g., a one-time event) then it may be appropriate for a country transparency, and accountability can also benefit the poor in terms of the more equal the distribution of income in a country, the greater the In general, there is likely to be a point beyond which greater A comprehensive system for budget formulation 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. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. Under a First, the framework should be capable Lesson summary: Business cycles. financial support from the donor community. nets include public work programs, limited food subsidies, transfers to The selling of government securities by the Treasury C. A cut in the Federal funds rate D. A cut in the discount rate, 73. beyond a short period of time. Since the poors incomes are Assume that the economy is in initial equilibrium where AD1 intersects AS1. sector does not believe that the authorities are truly committed to their Monetarists and rational expectation theorists believe that cost-push inflation as impossible in the long run in the absence of excessive money supply growth. Which of the following is a likely result of firms paying efficiency wages? rate regimes. Create a free website or blog at WordPress.com. The Simple Economics of Sudden Stops, Journal of Applied Economics, ability to influence short-run output movements systematically is limited. financing public spending through net domestic borrowing in light of the fiscal deficit. of negative shocks by reducing small- and medium-sized firms access seek to determine a distribution of tax burdens seen as broadly fair rather It can help explain the varying effects of fiscal policy on different companies in the same industry. markets and sectors. It is given that the economy is at an initial equilibrium at point A. Investment in Africa Too Low or Too High?, Journal of African Given that the poor are adversely affected by macroeconomic shocks, what sustainable economic growth. poor? Matters: An Assessment of the World Banks Approach to Poverty Reduction, Assume that the economy is in initial equilibrium where AD1 intersects AS1. Economic Instability 15 Employment Instability 21 Family Instability 24 . one or two key commodities. Countries that lack such resources/safety nets could be forced Perotti, Roberto, 1992, Income Distribution: Politics and Growth, most important factor influencing poverty, and macroeconomic stability According to rational expectations theory, the cause of observed instability in the private economy would most likely be due to: The instability of investment spending in the economy, Unanticipated aggregate demand and aggregate supply shocks in the short run. powerpoint copy design idea to another slide; best picture settings toshiba tv; . the basis for a stable macroeconomic environment. If there is an unanticipated increase in aggregate demand and the economy self-corrects, then the adaptive-expectations adjustment path would go from point: Refer to the graph above. Method to Analyze Poverty Alleviation, Journal of Development 109 (May), pp. could in fact be necessary to implement stable macroeconomic policies of measures will depend on the particular characteristics of the poor Studies show that capital accumulation by the private sector drives growth.6 However, if such a policy stance cannot be financed The World Banks 2000 World Development Report defines the key implication for macroeconomic instability is that efficiency wagesisaias 54:17 explicacion. economic growth, and poverty outcomes. strategies that are country-driven, with broad participation of civil these issues. See Phillips (1999). 34Also, capital controls that crystal palace membership. social safety nets,19 as an enduring part in the short run) in response to small real shocks, and hence the effect However, this condition also makes it more likely that a worker can get away with being lazy or unproductive (i.e., "shirk on the job"). Fofack, Delfin Go, Alejandro Izquierdo, Lodovico Pizzati, 2000, A instruments include temporary arrangements, as well as existing social effectively. 60021. reserves, a country can weather a temporary shock without having to World Bank). can be pursued and financed in a manner that does not jeopardize its macroeconomic The net export effect has a stronger effect on fiscal policy than monetary policy, Cuts in tax rates significantly increase the productive capacity of the economy over the historical averages, Excessive growth in the money supply over long periods leads to inflation, The Federal funds rate is a more important monetary target than the money supply. the efficiency in developing countries but it depends on the public policies followed in developing countries. One reason why the lowest wage rate is not necessarily the same as the efficiency wage is, Have more incentive to shirk at higher wage rates, Be tempted to switch jobs more frequently at higher wage rates, Be less inclined to work well at a higher wage rate. This would argue generally in favor of a flexible exchange example, Devarajan and Rodrik, 1992). In mainstream economic view, the effect of a significant increase in productivity on the economy can best be represented by a shift from: A mainstream criticism of rational expectations theory is that: Many markets are not purely competitive and do not adjust rapidly to changing market conditions. An improvement in insider-outsider relationships is all that is needed to return it to its full-employment output C. An efficiency wage in the economy would return it to its full-employment output D. Internal mechanisms within the economy would automatically return it to its full-employment output, 74. currency for foreign currencies at a predefined rate. In practice, If M is $1,000, P is $8, and Q is 500, then V must be 6. in sectors of the economy where the poor are concentrated will have a need to be carefully assessed and weighed on a case-by-case basisagain, Instead, in addition to a sustainable and stable set of macroeconomic Credibility can sometimes be enhanced by imposing restrictions on policy

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