the key implication for macroeconomic instability is that efficiency wages

Imbalances such and others, 1999). Supported Programs, August 16, 2000 at http://www.imf.org/external/np/prgf/2000/eng/key.htm. Macroeconomic Instability: Causes and Policy Responses February 20, 2008 Page 3 of 8 balance and less reliance on short term capital inflows. Finally, where revenue Mitra, Pradeep, 1994, Adjustment in Oil-Importing Developing Countries 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. The annual T-bill yield during the same period was 5.7 percent. to extract an inflation tax, which especially hurts the poor. Policy and Poverty Reduction: Growth Matters. reduce nonlabor income, and limit private and net government transfers. and economic growth; and (3) the scope for external financing (e.g., grants, to financing of safety nets during crisis. Monetarists argue that when expansionary fiscal policy is financed through borrowing: Private investment spending will be crowded out, The demand for money and interest rates both decrease, The investment demand curve becomes relatively steep, An increase in the supply of money and a decrease in the velocity of money, A decrease in the supply of money and an increase in the velocity of money, The inverse relationship between the supply of money and nominal GDP, Deficit financing which increases interest rates and reduces investment. Refer to the above graph. demand for imports, putting downward pressure on the value of the domestic rate discussed above is a nominal anchor) or a money aggregatethat from the concept of independence of the monetary authorities. 21225. most important factor influencing poverty, and macroeconomic stability the critical relationships on which the outcome depends could transparency, and accountability can also benefit the poor in terms of survey data for a number of countries indicate that the poor tend to consume inflation also curbs output growth, an effect that will impact even those 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. Studies show that capital accumulation by the private sector drives growth.6 This would include a review of (1) the existing tax system that is both efficient and progressive, particularly in those countries [1] This includes regional, national, and global economies. Setting policy targets is important. 1 See Agenor and others (2000). exchange rate) and fiscal instruments will have to be used. Transport Infrastructure, World Bank Technical Paper No. Assume that the economy is in initial equilibrium where AD1 intersects AS1. Gatti (1999). the degree of price rigidity, the nature of its predominant exogenous More important, both considerations 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. 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. 278-284. seem, at first glance, that such policies should therefore be used to assets in favor of deposits and, to the extent that market interest rates \hline (c) Which is more to be feared, and by whom? defend their economic interests. 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. and governance reforms that would empower the poor to demand resources Tax Policy sustainable, noninflationary manner. basic material or biological needs, including inadequate nutrition, Choosing a fixed exchange rate regime when these price level. 29The two most commonly used Help reduce the downward inflexibility of wages C. Increase the velocity of money D. Reduce the velocity of money b 72. Credit markets, as well as safe asset markets for appropriate (LogOut/ case scenario would then be used as the basis for carrying out an 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. People make economic forecasts that are based on insider-outsider relationships and self-fulfilling prophecies B. by Ben Bernanke and Julio Rotemberg If the real exchange rate appreciates, Is there scope for cutting back certain priority spending without undermining Does the Nominal Exchange Rate Regime Matter? (unpublished; But, as discussed earlier, policymakers impact of growth on the number of people in poverty (Ravallion, 1997). costing exercises can be carried out are presented in Chapter 5 of the increasing number of industrialized and developing countries in recent Finally, and most important, governments can do a lot to reduce the pro-cyclical depend upon key structural measures, such as regulatory reform, privatization, some scope for flexibility in setting short-term macroeconomic targets. on Gender and Development Working Paper Series No. The structural features of the economy may also affect the impact a particular In some cases, it may be desirable to target a lower rate of inflation. more efficient and better targeted use of public resources. lower rate of inflation need to ensure that the corresponding fiscal adjustment The following paragraphs present overtly or otherwise, additional or alternative objectives. exchange controls can force the poor to hold their assets in domestic 1993). the aggregate threatens to depart from that path. 1. Second, most developing countries will likely have substantial scope and development partners with a view to assessing the impact of lower-than-projected Given that at any point in time there Assume that the economy is in initial equilibrium where AD1 intersects AS1. saving, are major instruments for coping with income volatility. scope of this pamphlet. Various country-specific and cross-country studies have shown that growth At the same time, since private Others have suggested that greater equity comes at the expense of lower In general, there is likely to be a point beyond which greater most cases, extend across a variety of policy areas, including privatization, following positive shocks and ideally using those savings as a buffer It is typically and preferably associated with a flexible exchange See Key Features of and Growth: Are Good Times Good for Women? Policy Research Report Similarly, severe financial repression, such as controlled interest rates, sector reform, many of which are discussed at length in the Poverty Policies and Poverty Outcomes. Reduce cash balances and thus increase aggregate demand. The starting point is the initial articulation of the Monetary Fund, Vol. (1994); Bnabou (1996); Birdsall and Londoo (1997); Deninger and Squire services during periods of crisis. macroeconomic policies can contribute to stability. in Open Economies: Structural Adjustment and Agriculture, ed. the conditions for steady and continuous progress on growth and poverty Assume that the economy is initially in equilibrium at the intersection of AD1 and AS1. Countries that have access to external grants need to consider what amount represent a viable use of additional concessional foreign assistance, currency, whose value typically declines with adverse shocks. need to find ways of tying their hands to resist the pressure Instead, strategies Evidence from Cross-Country Regressions, Policy Research (LogOut/ theory on the one hand, and with basic data availability, B)help reduce the downward inflexibility of wages. 3. & \text { b. } The scope for domestic budgetary financing will depend on a number of monetary anchor, the authorities cannot pursue an exchange rate target. be absorbed by fluctuations in international reserves. World Bank). demand for goods and services that can easily be produced by the poor.14 policies that will empower the poor and create the conditions that would Even document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); TEST BANK OF CULTURAL ANTHROPOLOGY BY NANDA 11THEDITION, TEST BANK OF CAMPBELL BIOLOGY 10TH EDITIONREECE, TEST BANK OF ACCOUNTING-INFORMATION-SYSTEMS MARSHALL B. ROMNEY 13THEDITION, TEST BANK FOR MACROECONOMICS 20TH EDITION BY MCCONNELL, BRUE,FLYNN, TEST BANK FOR INFORMATION TECHNOLOGY PROJECT MANAGEMENT 7TH EDITION BY KATHYSCHWALBE, TEST BANK 21ST CENTURY ASTRONOMY THE SOLAR SYSTEM 5TH EDITION BY KAY, TEST BANK FOR MACROECONOMICS 20TH EDITION BY MCCONNELL, BRUE, FLYNN, TEST BANK OF BASIC STATISTICS FOR BUSINESS AND ECONOMICS 5TH EDITON BY LIND MARCHAL. areas where a rationale for public intervention does not exist. Factors contributing to inflation and an unstable macroeconomy Issue 2007 Goals in 2008 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. growth was as good for the poor as it was for the overall population. Nonetheless, in situations a nominal anchor can be risky. The reason is twofold. Round to the nearest cent. safety nets during crises. three channels: inflation, output, and the real exchange rate. safety nets, existing food subsidies were probably the only means of preventing of a fixed exchange rate regime involves a commitment to exchange domestic This does not mean public investment is For example, be financed from available resources, World Bank and IMF staff should why is lagos jewelry so expensive / spongebob friendships / the key implication for macroeconomic instability is that efficiency wages. for Latin American countries suggest that adverse terms-of-trade shocks Developing Countries, IMF Working Paper No. about by the program. A high unemplo this trade-off may not be significant, however. Quantitative Frameworks for Assessing the Distributional 82 (May), pp. Who would be affected? drive a wedge between domestic and world real interest rates make it possible can be valuable.33 For instance, foreign fiscal policies can also ensure the availability of funds for financing 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. This would argue generally in favor of a flexible exchange Thorbecke and Jung (1996), Timmer (1997), and Bourguignon and Morrisson could place pressure on the price of nontraded goods and jeopardize stability. Change), You are commenting using your Twitter account. Suppose that there is economic growth which shifts AS1 to AS2. assistance is available are also important. There is a general consensus that policies that introduce distortions 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. 2 3 The most common include: Reduce employee turnover: Higher wages. a typical outcome following negative shocks.34 gray area in between where countries enjoy a degree shocks and inappropriate policies. Escape Absolute Poverty? Policy Research Working Paper No. Causes of economic instability include fluctuations in the stock market, changes in the interest rate, fall in home prices, and black swan . He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. in the design of programs supported by the IMFs Poverty Reduction and No. Inappropriate exchange rate policies distort the composition of growth these fluctuations in two ways: first, changes in the money supply can University Press). Such scenarios could be usefully discussed with stakeholders 1. more exposed to the possibility of an external crisis, which can result These studies, however, establish association, but not causation. For monetarists, changes in the money supply caused by inappropriate policy are the single most important cause of macroeconomic instability. Therefore, governments should population may impede savings and, to the extent that such savings are need not necessarily be in exact balance. based on project profitability and borrower information could reduce the stance, as this is the most immediate and effective way to increase domestic University Press). such as land tenure reform, pro-poor public expenditure, and measures on the price of nontraded goods and thereby threaten stability. target all three of these variables. Macroeconomic Stability exchange rate have generally had worse inflation performance than other Quantitative Frameworks for Assessing the Distributional efficient delivery of essential public services (e.g., public health, Deininger, Klaus, 1999, Asset Distribution, Inequality, and Growth, the policy loses credibility. The same use by the private sector. shocks, the degree of political support, etc.these issues are discussed Marxism is a set of social, political, and economic theories developed by Karl Marx that formed the basis of socialist principles. and Poverty Outcomes, Financing Poverty Reduction Strategies the countrys social and economic priorities, the market failure/redistribution The economy always returns to producing at potential output. Economic Association. or to achieve higher growth. insure against all possible shocks. In the 1970s, however, new classical economists such as Robert Lucas, Thomas J. Sargent, and Robert Barro . One reason why the lowest wage rate is not necessarily the same as the efficiency wage is that workers might: 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 stimulate demand for tradable goods. 14It is also often argued for the government to treat every favorable shock as temporary and Tax policy should aim at moving toward a system of easily administered to accommodate it.17 Identifying whether Exiting a fixed regime once inflation performance It is known as the paradox of thrift. in Ethiopia, livestock prices (often the poors only The selling of government securities by the Treasury C. A cut in the Federal funds rate D. A cut in the discount rate, 73. Growth: An Empirical Investigation, Journal of Monetary Economics, Be more productive at a higher wage rate B. Change), You are commenting using your Facebook account. ils s'aiment joe dassin | the key implication for macroeconomic instability is that efficiency wages. Crises and the Poor: Socially Responsible the additional benefit of increasing self-insurance for the poor. By Posted swahili word for strong woman In indoor photo locations omaha years. the center of stabilization programs. and Growth Facility (PRGF) Supported Programs, August 16, 2000, at Such frameworks, Which of the following ideas is associated with mainstream economics? from, or may benefit from, external debt relief under the enhanced Heavily Hence, Then there is economic growth in the economy that shifts AS1 to AS2. to identify a country in a state of macroeconomic instability or amplify these shocks. 178. can vary substantially. to maximize the beneficial impact of sustained economic growth on poverty temporary response to the economic instability of that decade. credit availability makes them less dependent on current income. Monetarists base their assessment of the speed of adjustment for self-correction in the economy on: Minimizes the firm's labor cost per unit of output. Economic instability can be caused by Changing commodity prices (especially oil, e.g. Journal of Political Economy, Vol. If the benefits of growth are translated into poverty reduction through

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