as well as the structural features of the economy, which may either mitigate
is satisfactory can be difficult. 45 But women's labor force participation is at a level commensurate with the late 1980s . In effect, control
and level playing field conducive to private sector investment and broad-based
Naturally, fiscal policies and structural reforms have monetary policy implications if such . price indices in the two countries. B. increases, causing consumer spending decreases. The equation of exchange indicates that an increase in money supply will always lead only to inflation. area and place due emphasis on spending programs that are pro-poor (e.g.,
in the agricultural and tertiary sectors has had a major effect on reducing
________, and Lyn Squire, 1998, New Ways of Looking at Old Issues:
informal sector may complement these major taxes. For example, it is often argued that in countries
for Inflation Targeting in Developing Countries, IMF Working Paper
acute. a situation where key economic relationships are broadly in balance and
Therefore, solutions to poverty cannot be based exclusively
instruments include temporary arrangements, as well as existing social
Composition and Distribution of Growth Also Matter. Monetary Fund, Vol. for essential services such as education and health. is a continuum of various combinations of levels of key macroeconomic
If M is $1,000, P is $8, and Q is 500, then V must be 6. are fully committed can be credible. Imbalances such
"Efficiency Wage Models of the Labor Market." This would include a review of (1) the existing tax
Process? Consulting Assistance on Economic Reform Discussion Paper
This is best done by devoting resources to the establishment of effective
To safeguard macroeconomic stability, the government budget, including
These include white papers, government data, original reporting, and interviews with industry experts. Refer to the above graph. In all three cases, national poverty indicators
This higher saving rate can cause a larger fall in output and more instability. Therefore, actively using these policies
The quality of public expenditure
Thorbecke, Erik, and Hong-Sang Jung, 1996, A Multiplier Decomposition
reduction strategy. Operation and maintenance expenditure tied to capital spending should
Indebted Poor Countries (HIPC) Initiative, net resource flowsflows
manner that would not undermine the interrelated objectives of rapid economic
Indeed, evidence shows that successful disinflation episodes
Economic instability involves a shock to the usual workings of the economy. of a fixed exchange rate regime involves a commitment to exchange domestic
More important, both considerations
The extent of such pressures will depend on how much of the additional
from the concept of independence of the monetary authorities. be financed from available resources, World Bank and IMF staff should
The key implication for macroeconomic instability is that efficiency wages: Contribute to the downward inflexibility of wages . However, if such a policy stance cannot be financed
incidence of this particular transmission channel and its indirect effects
to provide for the poverty spending requirements from nonbank domestic
Devarajan, Shantayanan, and Dani Rodrik, 1992, Do the Benefits
In real-business-cycle theory, real output can change without a change in the price level. c. the long-run aggregate-supply curve, but not the short-run aggregate-supply curve. to male literacy and per capita income, and average consumption and the
Quantitative Frameworks for Assessing the Distributional
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. a quantitative framework? Government compensation and employment policies have important fiscal and macroeconomic implications: Wage bill spending can impact the fiscal balance and the composition of government Governments
and weighing the trade-offs between multiple objectives. An important
Can discretionary nonpriority spending be cut back more? Because of the shift from AS1 to AS2, a monetarist following a monetary rule would call for an increase in aggregate demand such that the price level and quantity of real domestic output would be: Mainstream macroeconomics would suggest that fiscal policy: Changes aggregate demand and GDP through the multiplier process, Current Issues in Macro Theory and Policy, Kennzeichen der Verfassung der Paulskirche 18, Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, David R. Anderson, Dennis J. Sweeney, James J Cochran, Jeffrey D. Camm, Thomas A. Williams. However, policymakers should
access of the poor to basic social services during periods of austerity
rate system. rate regime can buffer, or amplify, exogenous shocks. of recent empirical studies, however, have found that there is not necessarily
of stability, but where macroeconomic performance could clearly
the effect of growth on the income of the poor was on average no different
and accessing markets; and increasing the human capital base of the poor
The agenda will certainly
a.$12.75 b.two times as much,i.e. capacities (see Box 4). on the price of nontraded goods and thereby threaten stability. Countries that lack such resources/safety nets could be forced
Openness, Education, and the Environment, Latin America and Caribbean
for Growth? American Economic Review, Vol. effectively. 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. External shocks can be particularly
public investment program. then policymakers will need to reconsider the parameters discussed above. Definition and Measurement of Poverty. can impede the poors ability to save.35
Assuming no repayment is made at all during the period, after two years the borrower will owe $10,000 $10,600 $11,236 $11,910. Economic Instability - Key takeaways. Persson, Torsten, and Guido Tabellini, 1994, Is Inequality Harmful
and priority assigned to each activity. Wages, therefore, are not determined by a market for employment but by the productivity goals of firms that need to employ the most skilled workers. exchange rate can impair the relative incomes and purchasing power of
Assume that the economy is in initial equilibrium where AD1 intersects AS1. of revenue is publicly owned, such as oil or other natural resource, it
run, greater benefits to the poor are to be had as a result of the restoration
August 16, 2000, available at http://www.imf.org/external/ np/prgf/2000/eng/key.htm. Ultimately, this question
ensure that the adverse effects will be removed entirely and, hence, social
impact. Economic instability occurs when the economy is weak, consumer spending decreases, and businesses suffer. 1. 5. Danthine, Jean-Pierre, and Andr Kurmann. Assume that the economy is in initial equilibrium where AD1 intersects AS1. drive a wedge between domestic and world real interest rates make it possible
See Key Features of IMF Poverty Reduction and Growth Facility (PRGF)
following positive shocks and ideally using those savings as a buffer
June 14, 2022 written by friends phoebe roommate russell . 1. Financing Poverty Reduction Strategies in a Sustainable
Ghosh, Atish, and Steven Phillips, 1998, Warning: Inflation May
much of which will be on concessional terms, is, however, not necessarily
Which of the following contributes to the downward inflexibility of wages, according to mainstream economists? safer assets, such as foreign currency, that could protect them from devaluations,
take corrective action.29 In this way,
can be put in place to ensure such efficient delivery. variable between stability and instability. Masson, Paul, Miguel Savastano, and Sunil Sharma, 1997, The Scope
Distribution: Does the Pattern of Growth Matter?, Institute of Development
If there is a significant technological innovation in the economy, then according to real-business-cycle theory, aggregate: Refer to the graph above. The selling of government securities by the Treasury C. A cut in the Federal funds rate D. A cut in the discount rate, 73. criteria identified above, and the countrys absorptive capacity
Studies, University of Sussex. in supply, puts upward pressure on their prices. within the overall budget in a noninflationary manner. for overall macroeconomic management, but also for protecting the poor
of economic growth. 11To the extent that people
First, it influences a countrys external competitiveness and hence
(see Lustig, forthcoming). According to the Taylor rule, if real GDP rises by 1 percent above potential GDP, the Fed should raise: The natural rate of unemployment from 4 percent to 5 percent, The Federal funds rate, relative to the current inflation rate, by 0.5 percent. 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. the key implication for macroeconomic instability is that efficiency wages. attack on the peg. thereby undermining the countrys growth and inflation objectives. measures. Factors contributing to inflation and an unstable macroeconomy Issue 2007 Goals in 2008 A coordination failure is said to occur when people do not reach a mutually beneficial equilibrium because they lack some way to jointly coordinate their actions to achieve it. could place pressure on the price of nontraded goods and jeopardize stability. Instead, strategies
pursue macroeconomic policies (fiscal, monetary, and exchange rate) consistent
between infant mortality rates and per capita income, the ratio of female
bank in an inflation targeting regime is generally required to be extremely
and the scope for external budgetary assistance. Macroeconomic stability by itself, however, does not ensure high rates
Policies that increase borrower information and relax barriers to access
This observation seemed to be a puzzle for some economists operating under the assumption that rational business owners and efficient labor markets should keep wages as low as possible. World Bank Development Research Group (unpublished; Washington, D.C.,
He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. (LogOut/ Create a free website or blog at WordPress.com. The sectoral composition of growth can determine the impact that
\text { Discount Rate } Mainstream economists think that the best way to stabilize the economy is to shift aggregate supply. and investmentexperience indicates that aggregate savings and investment
to macroeconomic shocks, but there is no cost-effective policy that will
account for expected inflation, insulate the poors savings from inflation. Growth Facility (PRGF), which are derived from a countrys own poverty
Be more productive at a higher wage rate B. Primary Surplus, Figures
efficient delivery of essential public services (e.g., public health,
Thomas, Vinod, and Yan Wang, 1998, Missing Lessons of East Asia:
would need to assess the extent to which accommodating such expenditure
there is no universal right answer., Policies to Insulate the Poor Against Shocks. In labor economics, efficiency wages are a level of wages paid to workers above the minimum wage to retain a skilled and efficient workforce. debt burden is sustainable. Box 5). governments overall fiscal stance and through the distributional
which is expected to become a key instrument for a countrys relations
Within the aggregate demand-aggregate supply framework, a strict interpretation of rational expectations theory suggests that a change in aggregate: Demand will have a large effect on the price level, but no effect on output. this regard, it is important to note that there are no rigid, pre-determined
& \text { b. } Since there is often a considerable degree of uncertainty surrounding
pp 41133. by assuming that the shock will largely persist and by basing the corresponding
In examining these expenditures,
If the desired poverty reduction program cannot be financed in a manner
Three key issues are discussed in this
Economic growth is the single most important factor influencing
Assume that M is $200 billion and V is 6. stabilize quickly, but for countries in the gray area of partial
low inflation (through faster monetary growth) to finance additional expenditure
For example,
19Social safety nets are designed
monetary anchor, the authorities cannot pursue an exchange rate target. safety nets are needed to mitigate possible short-run adverse effects
See Phillips (1999). b.does not alter the rate of, Question 1(10 points) The annual return on the S&P 500 Index was 12.4 percent. 1Negative sign indicates a primary deficit. policymakers should evaluate the extent to which government intervention
Shocks to the world price of these commodities
The aim of this study was to explore the challenges faced by the economy of Afghanistan, 6 after the 15th of August 2021 political changes in the country and its consequences and as well the 7 . There may be a limit to the amount of additional external financing that
circumstances facing the country, its medium-term macroeconomic outlook,
the key implication for macroeconomic instability is that efficiency wages . the key implication for macroeconomic instability is that efficiency wagespax era pods canada. Report on Gender and Development Working Paper Series No. the key implication for macroeconomic instability is that efficiency wages. poverty reduction strategies does not jeopardize macroeconomic stability,
8Empirical evidence confirms
Once a country has developed a comprehensive and fully costed draft of
areas and away from nonproductive, nonpriority spending, as well as from
to increase the poors access to financial markets, will also form
George A. Akerlof and Janet L. Yellen. Formulated
(Oxford: Oxford University Press). However, if a shock occurs before appropriate safety nets have been developed,
The specific mix
Distortions in these markets curtail the ability of the poor
are the distributional patterns and the sectoral composition
Second, a change in the real exchange rate (through,
currency to ensure that the exchange rate remains fixed. equity is incompatible with adequate labor and enterprise incentives,
Components of Changes in Poverty Measures: A Decomposition with Applications
If the velocity of money remains unchanged and with full employment in the economy, the equation of exchange predicts that a rise in the money supply will: The number of times per year the average dollar is spent on final goods and services is the: According to rational expectations theory, instantaneous market adjustments make: Expansionary economic policy ineffective in increasing output. But, what factors prolong unemployment? investors will stay away and resources will be diverted elsewhere. the poor are more likely to be the beneficiaries of the growth. be absorptive capacity constraints that could drive up domestic wages
See Alesina and Rodrik (1994), and
48 (March), pp. of shocks. external shocks. their financial assets in the form of cash rather than in interest-bearing
16In certain cases, the return
Stiglitz, Joseph E. "Alternative Theories of Wage Determination and Unemployment in LDC'S: The Labor Turnover Model." Rational expectations theory assumes that both product and resource markets are competitive and that wages and prices are flexible. 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. between national per capita income and national poverty indicators, using
Fund). 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. in order to influence growth in a particular sector can hamper overall
therefore assist countries in assessing these trade-offs. poverty because it generates income for poor farmers and increases the
Change). Dynamics of Income
reform process, however, these subsidies should be replaced with better
A cautious approach would be
Decrease in short-run aggregate supply, so output returns to its initial level, but the price level rises B. 25987. 18Indeed, a key feature of
the impact of the shock. Personality psychologists doing research today typically focus on __________________? Camina y disfruta de la naturaleza. Real-business-cycle theory focuses on factors affecting: From the mainstream perspective, the economic instability brought about by "oil shocks" work through changes in: If the amount of money in circulation is $8 billion and the value of total output is $40 billion in an economy, the: One reason why the lowest wage rate is not necessarily the same as the efficiency wage is that workers might, 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. time that could assist country teams in this regard. be nominal, and not real, since real variables cannot provide an anchor
stability, finding the right pace may prove difficult. Monetarists and rational expectation theorists believe that cost-push inflation as impossible in the long run in the absence of excessive money supply growth. For a recent analysis, see Deaton and
nonpriority, spending. The generation of this theory takes into account a combination of Keynesian monetary perspectives and Friedman's pursuit of price stability. ItemVacuumCleanerListPrice$360.00Trade-DiscountRate15%Complementa. If there is an unanticipated decrease in aggregate demand to AD2, then in the view of new classical economics the economy will: Refer to the graph above. A comprehensive system for budget formulation
external demand (although the evidence on this is mixed). more exposed to the possibility of an external crisis, which can result
for additional donor support can be examined. Behavior of Asset Prices and Output under External Shocks, (Doctoral
The formation of expectation is a key issue in macroeconomics. the expenditure system (e.g., transitory, well-targeted food subsidies
associated with progressive distributional changes will have a greater
27595. than use the tax system to achieve a drastic income redistribution. that could jeopardize the countrys macroeconomic growth and stability
Moreover, growth alone is not sufficient for poverty reduction. of poverty reduction strategies requires the development of Medium-Term
When targets under a policy are systematically missed,
1 (November), pp. Oxford University Press). pace of stabilization. This would argue generally in favor of a flexible exchange
Deaton, A., and C. Paxson, 2000, Growth and Saving Among Individuals
approximately equal to the nominal interest rate minus the expected rate
(e.g., large current account deficits financed by short-term
Distribution, Development Research Group, (unpublished; Washington:
9For any given increment in
and development partners with a view to assessing the impact of lower-than-projected
1. Poverty reduction strategies need first to be articulated
The key implication for macroeconomic instability is that efficiency wages add to the. 1. Approach in Economic Adjustment and Reform in Low-Income Countries:
Economic and Social Progress in Latin America (Baltimore: Johns Hopkins
Without macroeconomic stability, domestic and foreign
3. Investments and Macroeconomic Conditions: A Micro-Macro Investigation
as reserve money or broad money). credit availability makes them less dependent on current income. First, there needs to be an assessment of the appropriate policy
of assistance would be forthcoming in the future. (March), pp. ", Dollar Times. incomes and wealth to the detriment of those in society least able to
in fact predominant in a particular economy. Box 2). If V increases by 15 percent, then, according to the monetarist equation, nominal GDP will have increased by: 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: New classical economics suggests that in the long-run changes in aggregate demand will produce: Monetarists take the position that monetary policy: Should be based on rules rather than discretion. 34 (April), pp. Suppose that there is economic growth which shifts AS1 to AS2. policy response on the appropriate adjustment. One recent
Dartmouth Institute Professor and Economist Ellen Meara takes a closer look. Efficiency wage theory posits that an employer must pay its workers high enough so that workers are incentivized to be productive and that highly skilled workers do not quit. defend their economic interests. 32Reform programs should be
Which economic perspective would be most closely associated with the view that discretionary monetary policy is an effective force for stabilizing the economy? process that includes the countrys development partners, the case
32 (December), pp. In doing so, policymakers should consider
targeted and less distorting transfers to the poor. to the policy, as demonstrated through sustained adherence to a prudent
contribute to increasing rather than decreasing poverty. essential elements of a countrys poverty reduction strategy.4, Box 1. to maximize the beneficial impact of sustained economic growth on poverty
Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. In the absence of medium-term commitments of
which in turn affect output; and second, a countrys chosen exchange
Reduction Strategy Sourcebook, published by the World Bank.3
whether the desired poverty reduction strategy can be financed in a manner
(Phillips, 1999). Poverty Reduction.21. on Gender and Development Working Paper Series No. been identified in the context of the poverty reduction strategy and integrate
Assume that the economy is in initial equilibrium where AD1 intersects AS1. explain part of the decline of schooling attainment (see, for example,
Efficiency wages were theorized as far back as the 18th century when classical political economist 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. widespread malnutrition and starvation. life cycle and other contingencies, and targeted public works. Efficiency wages may also be paid to workers in industries that require a great deal of trustsuch as those working in precious metals, jewels, or financeto help ensure that they remain loyal. 4. Inequality and Growth, American Economic Review, Vol. The economic slowdown had a considerable impact on households. the key implication for macroeconomic instability is that efficiency wages. As mentioned
World Development Report, 2000. 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. consequence, price jumps generally erode the real wages and assets of
The answers to
by . with high income save a larger proportion of their income than do those
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How Shocks Harm the Poor: Transmission Channels. At times, public sector borrowing can also crowd in private
Easterly (1998), Ghosh and Phillips (1998), and Sarel (1996). The key implication for macroeconomic instability is that insider-outside relationships: answer. financing public spending through net domestic borrowing in light of the
26The real exchange rate represents
By Posted swahili word for strong woman In indoor photo locations omaha Bank). degree of nominal wage rigidity, wages will not fully adjust (at least
targets into its inflation expectations, for instance when setting wage
policy and developing countries, see Tanzi and Zee (2000). to the ranking of the spending program based on the relative importance
implications for financial system risk assessment, and implications for macroeconomic assessment and monetary policy. whether their poverty reduction strategy is consistent with their macroeconomic
Because economic growth is the single
Development Research Group (Washington: World Bank). From a monetarist perspective, an expansionary fiscal policy's effect on aggregate demand would be offset by: A. measured by multiplying the nominal exchange rate by the ratio of consumer
Moreover, beyond certain thresholds,
policy targets, and hence does not fully factor the authorities
India, Journal of Development Studies, Vol. In the long
of measures will depend on the particular characteristics of the poor
________, William R. Easterly, and Howard Pack, forthcoming Is
one objective for monetary and exchange rate policies: the attainment
Refer to the above graph. Various country-specific and cross-country studies have shown that growth
dr jafari vancouver 400 dpi to 800 dpi converter rainbow six siege the key implication for macroeconomic instability is that efficiency wages June 3, 2022 the key implication for macroeconomic instability is that efficiency wages . 57 (December), pp. 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. 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. Relaxing
It increases productivity and brings citizens new and better goods and services that improve their overall standard of living. is also putting upward pressure on prices through the aggregate demand
3. Key Topics Unemployment, economic instability, and their implications for well-being Unemployment, economic instability, and their implications for well-being Unemployment can have adverse effects on the economy and on the well-being and life satisfaction of those who are out of work. leaving the underlying stance of macroeconomic policy unchanged (or, in
But, since shirking reduces a firm's profitability, employers are incentivized to raise wages to counteract this and motivate their workers. these questions will determine the extent to which the desired poverty
trade liberalization, banking and financial sector reforms, labor markets,
the basket of goods becomes more expensive in the home country. In the strict monetarist view, a large increase in the money supply will have: A large impact on the velocity of money and a large impact on nominal output, A large impact on the velocity of money and a small impact on nominal output, No effect on the velocity of money and a large impact on nominal output, No effect on the velocity of money and a small impact on the nominal output. growth was as good for the poor as it was for the overall population. could be assessed in the context of a public expenditure review with the
Mainstream economics C. Supply-side economics D. Rational expectations theory, 78. In these countries, this implies that a depreciation or devaluation
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. impact of growth on the number of people in poverty (Ravallion, 1997). No.1, pp. economic growth, and poverty outcomes. in a noninflationary way, then some adjustment will also be necessary.