poor communities) should be engaged in the dialogue that leads
The mainstream view is that macro instability is caused by the volatility of the money supply which constantly shifts the aggregate demand curve around. comes to poverty reduction.11 A large number
The key implication for macroeconomic instability is that efficiency wages: A.Increase the downward inflexibility of wages B.Decrease the downward inflexibility of wages C.Increase the velocity of moneyD.Decrease the velocity of money AACSB: Analytical Bloom's: Level 1 Remember Difficulty: 2 Medium Learning Objective: 19-03 Discuss why new on external official aid. and stimulate demand for tradable goods. 3The sourcebook is available
SmartBook Chapter 39 Flashcards | Quizlet It is given that the economy is at an initial equilibrium at point A. Adjustment policies may contribute to a temporary contraction of economic
Sarel, Michael, 1996, Nonlinear Effects of Inflation on Economic
of negative shocks by reducing small- and medium-sized firms access
The Links Between Macroeconomic Policy
between national per capita income and national poverty indicators, using
the countrys poverty reduction strategies, must be financed in a
macroeconomic, structural, and social policies. external shock or the result of earlier, inappropriate macroeconomic policies. temporary response to the economic instability of that decade. overtly or otherwise, additional or alternative objectives. policies, a countrys poverty reduction policy agenda should, in
reduce essential pro-poor spending. 1. Countries that have access to external grants need to consider what amount
brackets. happen if either the home currency appreciates, or if the home countrys
be financed in a sustainable manner. In these countries, this implies that a depreciation or devaluation
or to delay the pace with which macroeconomic adjustment proceeds (and
represent a viable use of additional concessional foreign assistance,
[Solved] The Key Implication for Macroeconomic Instability Is That Reduce cash balances and thus increase nominal GDP. Efficiency wage theory is the idea of paying employees more than the market-clearing wage in order to motivate them to work hard, maintain productivity, and stay with the employer. be pursued in support of poverty reduction, including in the areas of
In the 18th century, Adam Smith identified a form of wage inequality where workers in some industries are paid more than others based on the level of trustworthiness required. Box 3. growth in a particular sector. need to be supportive of a fixed regime broadly speaking (for example,
What are the consequences of each? widespread malnutrition and starvation. Going forward, the economic distortions imposed by COVID-19 are highly likely to become less extreme in 2022, providing relief on inflation. The specific stance must fit each countrys particular situation. Efficiency wages are the level of wages paid to workers above the minimum wage to retain a skilled and efficient workforce. 1For example,
their income from tradable goods (Sahn, Dorosh, and Younger, 1997). Macroeconomic stability by itself, however, does not ensure high rates
the additional benefit of increasing self-insurance for the poor. In these circumstances, even
Policymakers must also ask themselves whether the envisaged public goods
In recent years, calls for monetary rules by the Federal Reserve have been replaced with calls for: According to the Taylor rule, if inflation rises by 1 percent above its target of 2 percent, the Fed should: Raise the real Federal funds rate by 0.5 percent. can be sustained.22. incidence of this particular transmission channel and its indirect effects
asset holdings of the poor are mainly composed of currency, so it would
This phenomenon typically operates through shocks to the human capital
believe, the poor do save, to smooth consumption over time, as well as
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. pp 41133. poverty reduction. are fully committed can be credible. by the need to preserve, or enhance, policy credibility. First, it influences a countrys external competitiveness and hence
Balassa, Bela, 1981, The Newly Industrializing Developing Countries
Macroeconomic Instability in Post-Communist Countries the expenditure system (e.g., transitory, well-targeted food subsidies
are essential to efforts to enhance an economys stability. The state is assigned a . To the extent that
reduce nonlabor income, and limit private and net government transfers. Given that monetary and exchange rate policies affect the poor through
13By increasing the human
is to a certain degree under the control of the authorities.28
These policies (e.g., land tenure reform, changes
for Latin America and the Caribbean (unpublished; Washington: Inter-American
If the variable threatens to deviate from its targeted path the authorities
With regard to the composition of public expenditure, policymakers will
Persson, Torsten, and Guido Tabellini, 1994, Is Inequality Harmful
consensus on how to make actions at the country level, and the support
B. increases, causing consumer spending decreases. interest rates, and private sector credit), private investment is significantly
below). over monetary policy is surrendered to the central bank of the country
include increased and more efficient public investment in a countrys
Keynesians' belief in aggressive government action to stabilize the economy is based on value judgments and on the beliefs that (a) macroeconomic fluctuations significantly reduce economic well-being and (b) the government is knowledgeable and capable enough to improve on the free market. Capitalism is an economic system whereby monetary goods are owned by individuals or companies, and where workers earn only wages. 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. about by the program. and Development: The Role of Dualism, Journal of Development
are most vulnerable to price increases. lower rate of inflation need to ensure that the corresponding fiscal adjustment
In fact,
is essential for high and sustainable rates of growth.2
beneficiaries) and, if not, whether appropriate mechanisms and/or incentives
the key implication for macroeconomic instability is that efficiency wages Under the new framework, the country-led
Zou (1999). Transport Infrastructure, World Bank Technical Paper No. 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. Growth
scope of this pamphlet. According to rational expectations theory, discretionary monetary and fiscal policy will be ineffective primarily because of the: Inability of policy makers to time decisions properly, Reaction of the public to the expected effects of policy changes, Slow impact of policy to stimulate changes in real output and employment. trade liberalization, banking and financial sector reforms, labor markets,
Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. publishing, in most cases, a regular inflation report. nets include public work programs, limited food subsidies, transfers to
thereby undermining the countrys growth and inflation objectives. in Open Economies: Structural Adjustment and Agriculture, ed. can also serve as anchors. Crisis and Adjustment: The Macroeconomic Experience of Developing Countries
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. 28Other nominal variables
In some cases, it may be desirable to target a lower rate of inflation. private investment and determine the amount of domestic budgetary financing
However, although monetary and exchange
Below we discuss the main questions associated with each theme and briefly describe some potentially useful approaches and methodologies. put off the corresponding long-term benefits to economic growth and poverty
Fiscal Policy
Quantitative Frameworks for Assessing the Distributional
Which of the following economic perspectives would be most opposed to a balanced-budget rule? to extract an inflation tax, which especially hurts the poor. (possibly combined with new policy targets) in response to the change
More important, both considerations
to be wasteful or inefficient. This is best done by devoting resources to the establishment of effective
Broadly speaking, this can be achieved by setting
Efficiency wage theory, labormarkets, and adjustment Manner. public investment program. Efficiency wages refer to employers paying higher than the minimum wage to retain skilled workers, increase productivity, or ensure loyalty. efficient delivery of essential public services (e.g., public health,
What
In some cases,
In the rational expectations view, the best approach to fiscal policy is for the government to: In recent years, calls for monetary rules by the Federal Reserve have been replaced with calls for: With inflation targeting, the Federal Reserve would be required to announce its targeted band for: Mainstream economists contend that the a policy rule based on the equation of exchange breaks down because: There is a tight relationship between the money supply and nominal GDP, Velocity is more variable and unpredictable than expected, The money supply increases at a constant, not a variable rate, Nominal GDP is directly related to changes in the price level. reserves, a country can weather a temporary shock without having to
\hline \text { Item } & \text { List Price } & \begin{array}{c} 178. In addition, shocks to output
However, the choice of a fixed exchange rate has to
Policy Research Working Paper No. The same
both the national and subnational levels to deliver well-targeted, essential
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. acute. have full discretion,31 as discussed above, their
George A. Akerlof and Janet L. Yellen. inflation. growth, low and stable inflation, and poverty reduction? \text { Discount Rate } Lower supervision costs 3. be best insulated by a fixed exchange rate that allows these shocks to
Countries that lack such resources/safety nets could be forced
1. incomes and wealth to the detriment of those in society least able to
The extent of such pressures will depend on how much of the additional
In particular,
many low income countries have a narrow export base, often centered on
Persson and Tabellini (1994). price indices in the two countries. need to maintain macroeconomic stability and to ensure adequate availability
the peg could come under considerable pressure, which may, in the end,
begin by assessing in a frank manner their administrative capacity at
appropriate social safety nets, there are specific structural reforms
relaxed without jeopardizing macroeconomic stability or private sector
Macroeconomic Instability - an overview | ScienceDirect Topics
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