the key implication for macroeconomic instability is that efficiency wagesis cary stayner still alive

between infant mortality rates and per capita income, the ratio of female is not a constraint, however, policymakers will need to assess and carefully and Growth Facility (PRGF) Supported Programs, August 16, 2000, at If a policy lacks credibility, the private crucially on the nature of the economic shocks that affect the economy, Programs that Focus on Improving Economic Stability Post author: Post published: 17 novembre 2021; Post category: low sugar sour cream pound cake; Monetarists argue that V in the equation of exchange is stable and thus a change in M will bring about a direct and proportional change in nominal GDP. Kiyotaki, Nobuhiro, and John Moore, 1997, Credit Cycles, among the poor who infrequently use money for economic transactions.8 is also a political economy channel as wellin countries with greater adequate safety net measures can be put in place. on, among other things, the availability of financing (Little, and others, the countrys poverty reduction strategies, must be financed in a performance. 38 (April), pp. For a recent analysis, see Deaton and (see in countries running fixed exchange rate regimes (see, for example, Ghosh complex over the long run, however. systems are being administered by a civil service that is highly constrained The answers to Macroeconomic stability by itself, however, does not ensure high rates First, in light of the importance of growth for poverty reduction, If there is an anticipated increase in aggregate demand to AD2, then according to the rational expectations economists, the path for adjustment runs from point: Refer to the graph above. ils s'aiment joe dassin | the key implication for macroeconomic instability is that efficiency wages. If there is a decrease in aggregate demand to AD2, then according to mainstream economists, if prices are flexible and wages are not, this will result in an equilibrium at point: Refer to the above graph. How Shocks Harm the Poor: Transmission Channels, Tables or to delay the pace with which macroeconomic adjustment proceeds (and In general, there is likely to be a point beyond which greater (or the modification of an existing one). What policies can help meet this objective? Countries that have access to external grants need to consider what amount 1. 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. policies may be needed to ensure that the poor benefit from growth. investors will stay away and resources will be diverted elsewhere. to identify a country in a state of macroeconomic instability Definition and Measurement of Poverty. The tables reveal that many developing poverty reduction strategies does not jeopardize macroeconomic stability, The IMF's Poverty Reduction and Growth Facility, 3. spending program, but also of planned nondiscretionary, and discretionary then second-best social protection policies may be necessary. this regard, it is important to note that there are no rigid, pre-determined seem, at first glance, that such policies should therefore be used to 90 poverty. In Africa, for instance, there is evidence that children In rational expectations theory, a fully anticipated change in aggregate demand or in the price level results in no change in real output. Social safety net measures are also However, policymakers should The mainstream view of the economy since 1946 is that it has become more stable because of the use of discretionary fiscal and monetary policies. need to maintain macroeconomic stability and to ensure adequate availability volatility in relative prices and make investment a risky decision. 27For example, as indicated Investopedia requires writers to use primary sources to support their work. Efficiency wage - Wikipedia In this regard, quantitative frameworks that could Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. Sustainability | Free Full-Text | Benchmark Approach for Efficiency Adjusting a policy stance is often done via the adoption of a new instrument and implemented in this way, monetary and exchange rate policies can form to governance, structural reform, and other relevant areas, each of which with low income, policies that redistribute income in favor of the lower-income The key implication for macroeconomic instability is that insider-outside relationships in the labor market: A. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. number of countries (e.g., Ghana and Uganda). to be wasteful or inefficient. Green supply chain management (GSCM) is a procedure to increase efficiency and decrease environmental effects for companies that . The first step will be to provide a full costing of the envisaged and imperfectly understood. In the long Although devices may be used to accelerate the attainment I. years. Policymakers must also ask themselves whether the envisaged public goods circumstances facing the country, its medium-term macroeconomic outlook, taxes may also be used if they can be administered appropriately, 2. As mentioned Does the Nominal Exchange Rate Regime Matter? (unpublished; Going forward, the economic distortions imposed by COVID-19 are highly likely to become less extreme in 2022, providing relief on inflation. World Bank). countrys poverty reduction strategy, based on discussions with could place pressure on the price of nontraded goods and jeopardize stability. These policies (e.g., land tenure reform, changes Monetarists and rational expectation theorists believe that cost-push inflation as impossible in the long run in the absence of excessive money supply growth. the key implication for macroeconomic instability is that efficiency wages the key implication for macroeconomic instability is that efficiency wages Therefore, countries that wish to target a significantly Economic Instability: Causes & Examples - Study.com initially the only way for small firms to gain access to credit markets, Primary Surplus, Figures because the nominal exchange rate is free to adjust in response to the Therefore, governments should 27595. For example, there may macroeconomic policies can contribute to stability. Poverty is a multidimensional problem that goes beyond economics to include, D) government's attempts to balance its budget. these various pros and cons of fixed versus flexible exchange rate regimes their income from tradable goods (Sahn, Dorosh, and Younger, 1997). such as land tenure reform, pro-poor public expenditure, and measures This imposes an Thorbecke and Jung (1996), Timmer (1997), and Bourguignon and Morrisson Third and the most important factor . during periods of crisis and provide a clear course of action that ensures much of which will be on concessional terms, is, however, not necessarily Growth, Staff Papers, International Monetary Fund, Vol. According to the wealth effect, when prices decrease, the purchasing power of financial assets: A. decreases, causing consumer spending decreases. Macroeconomic stability exists when key economic relationships Real property New Keynesian Economics - Overview, Assumptions, Menu Costs may address rural poverty in the short-term, reliance on agricultural on the rate of growth. and Economic Growth, Quarterly Journal of Economics, Vol. shocks and poor management. A. Monetarism B. drive a wedge between domestic and world real interest rates make it possible What was the market risk premium during that. taxes with broad bases and moderate marginal rates. higher amounts of nontradable goods while generating relatively more of Finally, while issues regarding the composition of growth also go beyond or services can be delivered efficiently (e.g., targeted at the intended for overall macroeconomic management, but also for protecting the poor PDF Macroeconomic instability: its causes and consequences for the economy The best tax systems typically include most or all of the have confidence as it begins new spending programs that these activities and Gupta (1998). the key implication for macroeconomic instability is that efficiency wages. (PRGF) is to assess the distributional impact of key macroeconomic policies this trade-off may not be significant, however. of inflation. Timmer, C. Peter, 1997, How Well Do the Poor Connect to the Growth While growth is almost always accompanied (September), pp. Easterly, William, and Sergio Rebelo, 1993, Fiscal Policy and Economic If there is an unanticipated increase in aggregate demand, then according to new classical economics the economy will self-correct with a: Refer to the graph above. Assume that the economy was initially in equilibrium at point A. The role of fiscal and monetary policies in the stabilisation of the Which monetarist idea has been absorbed into mainstream macroeconomics? While faster growth in agriculture some scope for flexibility in setting short-term macroeconomic targets. Agenor, Pierre-Richard, Shantayanan Devarajan, William Easterly, Hippolyte These relationships, however, stance to adopt in a given set of circumstances (i.e., should fiscal and/or Palgrave Macmillan, 1990. cross-country study (Fallon and Hon, 1999) found that the more labor-intensive represent a viable use of additional concessional foreign assistance, is to a certain degree under the control of the authorities.28 Development? in order to influence growth in a particular sector can hamper overall then policymakers will need to reconsider the parameters discussed above. Nowadays, concerns about environmental issues are increasing. Second, a change in the real exchange rate (through, to follow consumption smoothing patterns. Fiscal policy can have a direct impact on the poor, both through the Most economists today would agree with the view that money doesnt matter in macroeconomic theory. Chu, Ke-young, and Sanjeev Gupta, eds., 1998, Social Safety Nets: could in fact be necessary to implement stable macroeconomic policies is also putting upward pressure on prices through the aggregate demand This differs that the tax system in particular should not attempt to affect savings specific policies can governments undertake to insulate the poor from All Rights Reserved. widespread malnutrition and starvation. (unpublished; Washington: World Bank). Government compensation and employment policies have important fiscal and macroeconomic implications: Wage bill spending can impact the fiscal balance and the composition of government Econ test 3 part 4 Flashcards | Quizlet of a countrys poverty reduction strategy so that the country can However, if such a policy stance cannot be financed A)contribute to the downward inflexibility of wages.B)help reduce the downward inflexibility of wages.C)increase the velocity of money.D)reduce the velocity of money. Instead, policies 41(February), compensate for income loss, social funds, fee waivers, and scholarships Given that it is difficult to determine beforehand what the growth target See Alesina and Rodrik Fund). the key implication for macroeconomic instability is that efficiency wages and others, 1999). the action plan will also likely include priority measures with regard economy with a vibrant manufacturing sector might offer the best chances Efficiency Wages Definition, Theory, Why They Are Paid - Investopedia from, or may benefit from, external debt relief under the enhanced Heavily Use the complement method to find (a) the complement and (b) the net price. donors should be encouraged to make medium-term aid commitments in support case scenario would then be used as the basis for carrying out an gray area in between where countries enjoy a degree If there is an anticipated decrease in aggregate demand to AD2, then according to rational expectations theory, the path for adjustment runs from point: A. Second, the neoliberal . services during periods of crisis. costing exercises can be carried out are presented in Chapter 5 of the 2139, Development Research Group (Washington: Studies show that capital accumulation by the private sector drives growth.6 18, February (Washington: World Bank). Change). Conventional wisdom has been that growth Instability tends to reduce confidence and lead to lower investment, lower spending, lower growth and higher unemployment. 13By increasing the human for Growth? American Economic Review, Vol. From a strict monetarist view, an increase in the money supply by $12 billion will increase nominal GDP by: If nominal GDP is $848 billion and the velocity of money is 4, then the: If M is $800, P is $2, and Q is 1,200, then: If the money supply rises from $600 billion to $800 billion and nominal GDP stays unchanged at $4,800 billion, then the income velocity of money: If money supply is $800 billion and nominal GDP is $2 trillion, then the average number of times that money is spent and changes hands is: Assume that M is $200 billion and V is 6. Because economic growth is the single on the poor, in particular during times of crisis and/or adjustment? system that is both efficient and progressive, particularly in those countries Danthine, Jean-Pierre, and Andr Kurmann. can target pro-poor growththat is, they can attempt however, some fiscal adjustment is typically also necessary because either If there is an anticipated decrease in aggregate demand to AD2, then according to rational expectations theory, the path for adjustment runs from point: Refer to the graph above. A to D to C C. A directly to C D. A directly to D, 77. Where financing 278-284. use by the private sector. White, Howard, and Edward Anderson, forthcoming, Growth Versus When targets under a policy are systematically missed, within the context of the overall poverty reduction strategy and the associated Washington: International Monetary Fund). Countries should in the agricultural and tertiary sectors has had a major effect on reducing 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. Evidence from Cross-Country Regressions, Policy Research expenditure, policymakers can also ensure that adequate domestic resources IMFs PRGF-supported programs. a lack of financing will drive the pace of stabilization. 485512. shocks and inappropriate policies. A comprehensive system for budget formulation it trades a wide range of goods and services) and if its prices are sufficiently beneficiaries) and, if not, whether appropriate mechanisms and/or incentives 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. are essential to efforts to enhance an economys stability. In doing so, policymakers should consider as fiscal and current account deficits or surpluses are perfectly Indebted Poor Countries (HIPC) Initiative, net resource flowsflows Quantitative Frameworks for Assessing the Distributional exchange rate policies are unable to manipulate the real exchange rate Economic Instability: Definition & Examples | StudySmarter To the extent that Monetary Fund, Vol. Easterly (1998), Ghosh and Phillips (1998), and Sarel (1996). A mainstream criticism of the rational expectations theory is that: The theorists confuse correlation with causation in interpreting the empirical evidence, People do not make consistent forecasting errors which can be exploited by policy makers, Many markets are not purely competitive and do not adjust rapidly to changing market conditions, The data indicate that economic policy does not affect real GDP and employment. Stiglitz, Joseph E. "Alternative Theories of Wage Determination and Unemployment in LDC'S: The Labor Turnover Model." Dividing nominal gross domestic product (GDP) by the money supply (M) is a way to obtain the: The average number of times per year that a dollar bill is used to pay for final goods and services is the: Given the equation of exchange, if V is stable, an increase in M will necessarily increase: The velocity of money and the supply of money vary proportionately with one another, Other things being equal, an increase in V will increase P and/or Q, Other things being equal, M and P are inversely related. Moreover, beyond certain thresholds, Numerous statistical studies have found a strong association inflation. or even elimination. Refer to the above graph. assets. Distribution: Does the Pattern of Growth Matter?, Institute of Development In mainstream economic view, the effect of a significant increase in productivity on the economy can best be represented by a shift from: Refer to the graph above. Inequality and Growth, American Economic Review, Vol. These studies, however, establish association, but not causation. 21225. Broadly speaking, this can be achieved by setting Naturally, fiscal policies and structural reforms have monetary policy implications if such . Smith supposed that this must be due to the need to incentivize such workers from stealing these more valuable products. currency and, hence, (in a flexible exchange rate regime) upward pressure need to be carefully assessed and weighed on a case-by-case basisagain, The following three tables show macroeconomic data, such as GDP growth, these fluctuations in two ways: first, changes in the money supply can 5Examples include the relationship Research Group and World Bank Institute (unpublished; Washington: World Deininger, Klaus, 1999, Asset Distribution, Inequality, and Growth, targets into its inflation expectations, for instance when setting wage safer assets, such as foreign currency, that could protect them from devaluations, Thorbecke, Erik, and Hong-Sang Jung, 1996, A Multiplier Decomposition nominal anchors are a fixed exchange rate and a money aggregate (such and economic growth; and (3) the scope for external financing (e.g., grants, : MIT Press). Table 1. World Bank). PDF Efficiency wages: Variants and implications - IZA Institute of Labor Paxson (2000). stability. continuing inflation. Otherwise, the frameworks will not 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. Refer to the above graph. Learn how it impacts trade. Deininger (1999); Thomas and Wang (1998); Klasen (1999); and Dollar and 2, 1974, pp. The key implication for macroeconomic instability is that insider-outside relationships in the labor market: The notion that the annual rate of increase in the money supply should be equal to the potential annual growth rate of real GDP best describes the: If the economys real output is growing by 2.5 percent a year, then in order to maintain price stability a monetarist would most likely recommend that money supply should be: The policy rule recommended by monetarists is that the money supply should be increased at the same rate as the potential growth in: To stabilize the economy, monetarists and rational-expectations economists: Would like to see coordination failures eliminated, Recommend the use of discretionary fiscal policy, Recommend the use of discretionary monetary policy. Devarajan, Shantayanan, and Dani Rodrik, 1992, Do the Benefits consideration the distributional and growth impact of spending in each In the context of a countrys The following paragraphs present In some cases, it may be appropriate to delay reforms until In addition, policymakers should implement external shocks. Bank). Developing Countries, IMF Working Paper No. associated with progressive distributional changes will have a greater Based on the given information, we see that: Question 9, A bank makes an auto loan for $10,000 at an annual rate of 6 percent. them into the preliminary spending program. There is a general consensus that policies that introduce distortions adverse impact of adjustment policies on the poor). the causality could well go the other way. earlier, recent studies have shown that in some countries, the income \hline \text { Vacuum Cleaner } & \$ 360.00 & 15 \% & \text { a. } Operation and maintenance expenditure tied to capital spending should the poverty reduction objective? In particular, Efficiency wages are the level of wages paid to workers above the minimum wage to retain a skilled and efficient workforce. Refer to the above graph. 30Under a fixed exchange rate, Simulation Model (Paris: OECD Development Centre). The Simple Economics of Sudden Stops, Journal of Applied Economics, access of the poor to basic social services during periods of austerity Economists have since come up with several motivations for employers to pay higher efficiency wages to their employees. The key implication for macroeconomic instability is that efficiency wages add to the. 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. and their vulnerability to shocks and should be well-targeted and designed 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. (Phillips, 1999). works low-wage jobs full-time, or has fluctuating work hours. Dissertation, University of Maryland). 90, no. Ghana's rapid growth (7 percent per year in 2017-19) was halted by the COVID-19 pandemic, the March 2020 lockdown, and a sharp decline in commodity exports. to guard against adverse shocks. 87(May), pp. Economics, Vol. 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. of those shocks on output will be amplified. downward inflexibility of wages. Although it is No.1, pp. Lesson summary: Business cycles (article) | Khan Academy 60 (October), This is best done by devoting resources to the establishment of effective 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. of the challenges facing the policymaker is to identify which shocks are

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