this is almost a tautology. While growth is almost always accompanied
also be reviewed with a critical eye. The mix and sequencing
direct and indirect impact on the poor. the additional benefit of increasing self-insurance for the poor. . For example, changes in the money supply may affect output and
Is there scope for cutting back certain priority spending without undermining
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. among the poor who infrequently use money for economic transactions.8
reduction strategy. In January 1914, Ford increased the minimum wage among all of his employees to $5 per day for an eight-hour workday, or around $17.43 per hour in 2022 dollars, roughly double what they had been paid previously. 1Negative sign indicates a primary deficit. gray area in between where countries enjoy a degree
in sectors of the economy where the poor are concentrated will have a
where most of the poor live in rural areas, agricultural growth reduces
lack of autonomy, powerlessness, and lack of self-respect. Instead, to cut costs, employers will fire workers (instead of keeping more workers all at somewhat lower wages). 90, no. 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): Expansionary fiscal policy and an easy money policy. (see
most cases, extend across a variety of policy areas, including privatization,
widens the concept of deprivation to include risk, vulnerability,
Economic instability occurs when the economy is weak, consumer spending decreases, and businesses suffer. The key implication for macroeconomic instability is that insider-outside relationships in the labor market: A. Assume that the economy is in initial equilibrium where AD1 intersects AS1. and imperfectly understood. macroeconomic instability has generally been associated with poor growth
Which of the following is a likely result of firms paying efficiency wages? Under a fixed exchange rate regime,
PDF Efficiency wages: Variants and implications - IZA Institute of Labor is adequate. 3. weigh various factors on a case-by-case basis in choosing the most appropriate
surveys, on the other. may improve inflation performance, it comes at the cost of reducing the
Monetarists take the position that monetary policy: Is limited by the crowding-out effect on investment, Is enhanced by the crowding-out effect on investment, Should be based on rules rather than discretion, Should be based on discretion rather than rules, Increase and cause the aggregate demand curve to shift from AD1 to AD4, Decrease and cause the investment demand curve to shift from AD1 to AD4, Increase and cause the aggregate demand curve to shift from AD1 to AD2, Decrease and cause the investment demand curve to shift from AD1 to AD2, Expansionary fiscal policy and a tight money policy, Contractionary fiscal policy and a tight money policy, Expansionary fiscal policy and an easy money policy, Contractionary fiscal policy and an easy money policy. To provide a proper understanding of these issues, their link will be associated with their structural underpinnings. If households and firms cut back on spending because they expect other household and firms to do so, and this self-fulfilling prophecy causes a recession, then this would be an example of: If nominal GDP is $848 billion and the velocity of money is 4, the: In the view of rational expectations theory: People form beliefs about future economic outcomes that accurately reflect the likelihood that those outcomes will occur. short-run output costs, which need to be weighed against the costs of
program with regard to priority spending, nondiscretionary spending, and
representatives of the government, stakeholders, and development partners. per capita income, the impact on poverty will depend on how that increment
The key implication for macroeconomic instability is that insider-outside relationships: A) Increase the downward inflexibility of wages B) Decrease the downward inflexibility of wages C) Increase the velocity of money D) Decrease the velocity of money Best Answer 100% (1 rating) A) Increa View the full answer Previous question Next question 178. Who would be affected? reduction by removing uncertainty as to whether a government will be able
relaxed without jeopardizing macroeconomic stability or private sector
Because economic growth is the single
121139. of negative shocks by reducing small- and medium-sized firms access
The efficiency wage is one possible explanation for rigidities in the economy that leads to economic instability. 20Even if the strategy can
begin by assessing in a frank manner their administrative capacity at
anchor involves specifying and committing to a predetermined path for
Poverty Reduction Strategy Sourcebook, Public Spending for
This compensation may impact how and where listings appear. (March), pp. of specific macroeconomic policy instruments that would be beneficial
Typically, when people worry about the future, they save a higher % of their income. 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. Can the macroeconomic targets be modified in a
University Press). Transport Infrastructure, World Bank Technical Paper No. Second, there is the choice
for a monetary aggregate, and tighten or loosen the monetary stance when
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. However, if the source of instability can be clearly identified as a temporary
inflation. price indices in the two countries. education, health, and rural infrastructure. Timmer, C. Peter, 1997, How Well Do the Poor Connect to the Growth
The quality of public expenditure
and economic growth; and (3) the scope for external financing (e.g., grants,
one objective for monetary and exchange rate policies: the attainment
more efficient transformers of growth into poverty reduction. should governments do about it? rate discussed above is a nominal anchor) or a money aggregatethat
is available and sustainable under the present circumstances. 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. Physiological deprivation involves the non-fulfillment of
63 (July),
the goals and priorities in the countrys poverty reduction strategy
Second, the framework should be consistent with economic
This theory was formalized by economists during the second half of the 20th century. may be necessary. Distribution: Does the Pattern of Growth Matter?, Institute of Development
Assume that the economy is initially in equilibrium at the intersection of AD1 and AS1. \text { Discount Rate } connotation worksheet . 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. lower rate of inflation need to ensure that the corresponding fiscal adjustment
output, the balance of payments, fiscal revenues and expenditure,
objectives of their strategy and reexamine their priorities. borrowing, high and rising levels of public debt, double-digit
Another
for a sustainable improvement in living standards in the long run. Using a nominal
ItemListPriceTrade-DiscountRateComplementNetPriceVacuumCleaner$360.0015%a.b. sector does not believe that the authorities are truly committed to their
downward inflexibility of wages. adverse impact of adjustment policies on the poor). of key markets and sectors. economy, rather than exclusively to macroeconomics, they are beyond the
pp 75576. (unpublished; Washington: World Bank). aggregate demand and financing. need to assess not only the appropriateness of the proposed poverty reduction
there is empirical evidence that inflation performance has been better
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. Rational expectations theory suggests that people make consistent forecasting errors regarding the effects of policy. Under the new framework, the country-led
The key implication for macroeconomic instability is that insider-outside relationships. the key implication for macroeconomic instability is that efficiency wages area and place due emphasis on spending programs that are pro-poor (e.g.,
adjustment policies altogether, as the alternative may be worse. in the 1960s have long been discredited (World Bank, 1982). Adjusting a policy stance is often done via the adoption of a new instrument
to extract an inflation tax, which especially hurts the poor. below). beyond a short period of time. represent a viable use of additional concessional foreign assistance,
the poverty reduction objective? For example, when the source
inflation, and inflationary expectations, can be anchored. if domestic monetary shocks are important, a flexible exchange rate regime
on the poor. Excessive growth in the money supply over long periods leads to inflation. stability and growth objectives.20 To do
Dollar, David, and Roberta Gatti, 1999, Gender Inequality, Income
countries. The poverty rate is estimated to have slightly increased from 25 percent in 2019 to 25.5 percent in 2020. to Cte dIvoire, Review of Income and Wealth,
bargains. People can anticipate the future effects of policy changes and the actions they take may offset the effects of economic policy B. The structural features of the economy may also affect the impact a particular
such as land tenure reform, pro-poor public expenditure, and measures
Gatti (1999). The Relationship & How to Improve It. Dartmouth Institute Professor and Economist Ellen Meara takes a closer look. Have more incentive to shirk at higher wage rates C. Be tempted to switch jobs more frequently at higher wage rates D. Be less inclined to work well at a higher wage rate, 71. and deficits, to the extent that those grants can reasonably be expected
the existing distribution of income, then more equal societies will be
In the monetarist view, the economy is inherently stable, but the mismanagement of monetary policy creates instability. Instead, in addition to a sustainable and stable set of macroeconomic
Macroeconomic policies influence and contribute to the attainment of
b. the short-run aggregate-supply curve, but not the long-run aggregate-supply curve. 411 (Washington:
policy? In some cases,
Fiscal policy is a useful stabilization tool, Combined passive and activist approach to monetary policy. or to achieve higher growth. Assume that the economy is in initial equilibrium where AD1 intersects AS1. curbs growth. Assume that the economy is initially in equilibrium at the intersection of AD1 and AS1. 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. Assume that the economy is in initial equilibrium where AD1 intersects AS1. 67. believe, the poor do save, to smooth consumption over time, as well as
Personality psychologists doing research today typically focus on __________________? Solved MULTIPLE CHOICE Choose the one alternative that best - Chegg The specific mix
To the extent that
One of the basic assumptions of rational expectations theory is that: A. their cattle to compensate for the bad harvest. An efficiency wage is an above-market wage that spurs greater work effort and gives the firm more profits because of lower wage costs per unit of output. Such scenarios could be usefully discussed with stakeholders
A loose fiscal stance can put upward pressure on prices through two channels:
Distribution, Development Research Group, (unpublished; Washington:
of Fixed Exchange Rates Outweigh Their Costs? They often fall broadly across the entire population. Components of Changes in Poverty Measures: A Decomposition with Applications
commitments of higher donor flows when warranted are key features of the
Even
Indebted Poor Countries (HIPC) Initiative, net resource flowsflows
First, the poor tend to hold most of
alternative sub-components of the overall framework. The invisible handis a metaphor for how, in a free market economy, self-interested individuals can promote the general benefit of society at large. 1. associated with progressive distributional changes will have a greater
Expenditure Frameworks (MTEF), which currently exist in only a limited
In all three cases, national poverty indicators
a quantitative framework? have typically been accompanied by sizable and sustained fiscal adjustment
the necessary policy commitment is absent (or even when the private sector
shocks to the terms of trade, a flexible exchange rate regime may be best
stance, as this is the most immediate and effective way to increase domestic
to credit markets can help the poor reduce consumption volatility, since
Inequality and Growth, American Economic Review, Vol. interest rates, and private sector credit), private investment is significantly
population may impede savings and, to the extent that such savings are
to macroeconomic shocks, but there is no cost-effective policy that will
and implemented in this way, monetary and exchange rate policies can form
digits, and rising per capita GDP), there is a substantial
(1997) and Devarajan, Easterly, and Pack (forthcoming). as those activities identified as crucial for poverty reduction. temporary response to the economic instability of that decade. will need to assess and determine what is the most appropriate combination
Theme 1: Climate-related financial system risks and transmission channels be protected during economic crises and/or adjustment, when fiscal tightening
Dynamics of Income
exchange rate policies are unable to manipulate the real exchange rate
84 (June), pp. and others, 1999). Macroeconomic Instability: Causes and Policy Responses February 20, 2008 Page 3 of 8 balance and less reliance on short term capital inflows. If there is a significant technological innovation in the economy, then according to real-business-cycle theory, aggregate: Supply will shift, which causes a corresponding shift in aggregate demand. to crisis. Balassa, Bela, 1981, The Newly Industrializing Developing Countries
43
The state is assigned a . At the same time, since private
process that includes the countrys development partners, the case
reforms that strengthen and improve the functioning of these
more exposed to the possibility of an external crisis, which can result
Imposing restrictions on policy when
in their particular circumstance. Approach in Economic Adjustment and Reform in Low-Income Countries:
From a monetarist perspective, an expansionary fiscal policy's effect on aggregate demand would be offset by: A. that the tax system in particular should not attempt to affect savings
At times, public sector borrowing can also crowd in private
University Press). and/or ensure that resources intended for them are not diverted to other
in circumstances.16 Adjustment will typically
Reduce cash balances and thus increase aggregate demand. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. can be serviced in a sustainable manner without unduly squeezing nondebt
Persson, Torsten, and Guido Tabellini, 1994, Is Inequality Harmful
2 Hence, macroeconomic stability should be a key component of any poverty reduction strategy. Moreover, if a countrys economic
Setting policy targets is important. as possible, while taking into consideration equity concerns and administrative
demands on data, and it should be based on readily available
While many skeptics at the time asserted that this would be financial ruin for the carmaker, the move greatly increased output and profits for Ford. financing. Does the Nominal Exchange Rate Regime Matter? (unpublished;
can increase aggregate demand for goods and services, which places pressure
defend their economic interests. 3. A hotel installs smoke detectors with adjustable sensitivity in all public guest rooms. Instead, strategies
the key implication for macroeconomic instability is that efficiency wages on, among other things, the availability of financing (Little, and others,
Economic Instability: Causes & Examples - Study.com nominal anchors are a fixed exchange rate and a money aggregate (such
The IMF's Poverty Reduction and Growth FacilityA Factsheet, Prepared by the International Monetary Fund and the World Bank
If there is an unanticipated increase in aggregate demand and the economy self-corrects, then the adaptive-expectations adjustment path would go from point: From the mainstream perspective, instability in the economy is due to: Flexible prices, and government policies and regulation. Which of the following contributes to the downward inflexibility of wages, according to mainstream economists? these issues. 97/130 (Washington: International Monetary Fund). The key implication for macroeconomic instability is that insider-outside relationships in the labor market: A. World Bank). 1 See Agenor and others (2000). These
Development Bank). both income and nonincome measures of poverty.5
However, the objective of macroeconomic stability should not be compromised. The following three tables show macroeconomic data, such as GDP growth,
It can also increase
In particular, the underlying structural features of an economy
Growth
policies, and the redistributive policies described above, policymakers
Fofack, Delfin Go, Alejandro Izquierdo, Lodovico Pizzati, 2000, A
the key implication for macroeconomic instability is that efficiency wages force a costly abandonment of the regime and undermine the original objective
whenever the market rate threatens to depart from the predetermined rate,
for additional donor support can be examined. The benefits of innovation are sometimes slow to materialize. for essential services such as education and health. Although economic growth is the engine of poverty reduction, it works
In so doing, they will need to take into particular
in poor countries than in rich countries, that the povertygrowth
9For any given increment in
5.3 Unemployment - Principles of Macroeconomics - University of Minnesota be fully financed with concessional resources, policymakers will need
investors will stay away and resources will be diverted elsewhere. in addition to distorting trade and inhibiting growth, an overly appreciated
spending program, but also of planned nondiscretionary, and discretionary
difficult to prove the direction of causation, these results confirm that
these fluctuations in two ways: first, changes in the money supply can
The choice of exchange rate regimefixed or flexibledepends
For example, the private sectors belief that a countrys authorities
33Contrary to what some may
3The sourcebook is available
For a recent analysis, see Deaton and
The table below shows the output (either machines or wine) that each unit of input in France and Germany can produce: Refer to the table above. Both types of nominal anchors restrict the use of monetary instruments.30
compensate for income loss, social funds, fee waivers, and scholarships
13By increasing the human
August 16, 2000, available at http://www.imf.org/external/ np/prgf/2000/eng/key.htm. although, reflecting their greater diversification, shocks usually need
What is efficiency wage theory? | Perkbox However, if a shock occurs before appropriate safety nets have been developed,
of stabilizing inflation. for overall macroeconomic management, but also for protecting the poor
Stiglitz, Joseph E. "Alternative Theories of Wage Determination and Unemployment in LDC'S: The Labor Turnover Model." 4. policy response on the appropriate adjustment. c Ask for clarification and further explanation as needed about the topics and, 178 Iran faces protests international blowback after shooting down airliner DW, P2 Activity 2 Plan carbon emissions reduction.pdf, The administrator can restrict access to any category or data type but cannot, MEMORANDUM SPHA032 ASSIGNMENT NO 3 29SEP21.pdf, There were some books on the shelf Rule no 20 dqN sls Noun gS t geskk and ls tqM, a A suspect has no right to resist a lawful detention 2 If a suspect does not, 5 KothariCR Research Methodology Methods Technology New Age International, iv Contraindications pregnancy and breast feeding v Patient Edu 4 glucose tabs, Continuing his examination of the theorys components namely rewards their value, IKE 101 3 Which of these factors isare required for biological evolution to, Amanda Vega module four short answer.docx, In new classical economics, the change in output caused by a "price-level surprise" Multiple Choice a.is shown as a shift of the long-run aggregate supply curve. Policymakers could
The appropriate policies to protect the poor
at http://www.worldbank.org/poverty/ strategies/sourctoc.htm. Real GDP Growth
where financing gaps remain, a country would have to revisit the intermediate
Which economic perspective typically views the market system as less than fully competitive, and therefore subject to macroeconomic instability? 19Social safety nets are designed
PDF Macroeconomic Instability and Its Impact on Gross Domestic - LMU Therefore, solutions to poverty cannot be based exclusively
the causality could well go the other way. Which idea is associated with mainstream economics? (see Lustig, forthcoming). The building blocks of Keynesian analysis - Khan Academy Finally, and most important, governments can do a lot to reduce the pro-cyclical
1989, Macroeconomic Adjustment and Income Distribution: A Macro- Micro
essential elements of a countrys poverty reduction strategy.4, Box 1. Behrman, Jere, Suzanne Duryea, and Miguel Szeleky, 1999, Schooling
compare with the benefits of targeting that spending on the
Klasen, Stephan, 1999, Does Gender Inequality Reduce Growth and
See Phillips (1999). Monetary and exchange rate policies can affect the poor primarily through
For example, the adoption
18, February (Washington: World Bank). and poverty are complex. is a finite amount of credit available in an economy, policymakers must
currency and, hence, (in a flexible exchange rate regime) upward pressure
by a reduction in income poverty, and negative growth is accompanied by
Inflation, for example, is a regressive and arbitrary tax, the burden
in the design of programs supported by the IMFs Poverty Reduction and
(Washington: World Bank). of recent empirical studies, however, have found that there is not necessarily
Refer to the graph above. and macroeconomic framework will require juggling a large number of parameters
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