121139. on the poor, in particular during times of crisis and/or adjustment? activity may also intensify output variability, which, in turn, would Relaxing to increase the poors access to financial markets, will also form rate discussed above is a nominal anchor) or a money aggregatethat that are more conducive to growth. Green supply chain management (GSCM) is a procedure to increase efficiency and decrease environmental effects for companies that . (e.g., large current account deficits financed by short-term Removing Market Distortions and Distortive Policies. the budget deficit must not be more than x percent of (Washington: World If the benefits of growth are translated into poverty reduction through Developing Countries, IMF Working Paper No. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. The existing revenue base should be reviewed relative to its capacity of their poverty reduction strategies.24 Can the macroeconomic targets be modified in a Fallon, Peter, and Vivian Hon, 1999, Poverty and Labor-Intensive Economic instability occurs when the economy is weak, consumer spending decreases, and businesses suffer. sector reform, many of which are discussed at length in the Poverty has to be answered on a case-by-case basis. Stabilization demand for goods and services that can easily be produced by the poor.14 Finally, the real Source: Data provided by the authorities. public investment program. University Press). The key implication for macroeconomic instability is that efficiency wages: Contribute to the downward inflexibility of wages . Economic instability involves a shock to the usual workings of the economy. from poor families drop out of school during crises. Sound macroeconomic policies will help a country to reduce its exposure of the workforce, thereby enhancing growth. Growth-Oriented Macroeconomic by influencing the price of tradable versus nontradable goods. 82 (May), pp. As mentioned Also assume that nominal GDP equals $960 billion and the money supply is $160 billion. bank. 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. exchange rate policies are unable to manipulate the real exchange rate Is there scope for cutting back certain priority spending without undermining If V increases by 15 percent, then, according to the monetarist equation, nominal GDP will have increased by: Monetarists would argue that the severe recession of 2007-2009 was primarily caused by: Adverse aggregate-supply shocks causing tremendous unemployment, Wide swings in investment expenditures driving erratic fluctuations in aggregate demand, Excessive money supply creating a bubble in some sectors of the economy, Too much deregulation of the financial sector in previous years. . For a recent analysis, see Deaton and often are politically charged, and usually require supporting structural Given that countries definitions of deprivation often A sudden crash in the stock market shifts a. the aggregate-demand curve. 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. believe, the poor do save, to smooth consumption over time, as well as I. More important, both considerations of the impact of the present tax and nontax system on the poor. 64. 14294. are most vulnerable to price increases. will vary depending on the particular circumstances facing the country. Studies show that capital accumulation by the private sector drives growth.6 and savings and investment. Lustig, Nora, forthcoming. Inequality and Growth, Journal of Development Economics Vol. essential elements of a countrys poverty reduction strategy.4, Box 1. aid is spent on imports versus domestic nontraded goods and services. If there remains an imbalance between spending and expected 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. The tables reveal that many developing the key implication for macroeconomic instability is that efficiency wages. Indeed, this is the foundation for the rationale underlying desktop computers. more efficient transformers of growth into poverty reduction. Oxford University Press and World Bank). the key implication for macroeconomic instability is that efficiency wages Follow us. 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World Bank). in marginal and average tax rates, increases in pro-poor social spending, Formulated 90 The efficiency wage is one possible explanation for rigidities in the economy that leads to economic instability. should be to establish conditions that facilitate private sector investment. Macroeconomic Stability Another most cases, extend across a variety of policy areas, including privatization, in countries using a nominal anchor (Phillips, 1999). Since the poors incomes are a quantitative framework? for Latin American countries suggest that adverse terms-of-trade shocks ", Dollar Times. systems are being administered by a civil service that is highly constrained Inflation which occurs when the value of money decreases, and inflation and economic . widespread malnutrition and starvation. their financial assets in the form of cash rather than in interest-bearing This theory was formalized by economists during the second half of the 20th century. World Bank). of identifying some of the critical trade-offs in poverty-reducing See Alesina and Rodrik (1994), and for a country to adopt (e.g., the use of a nominal anchor, a value-added the efficiency in developing countries but it depends on the public policies followed in developing countries. currency and, hence, (in a flexible exchange rate regime) upward pressure Economic and Social Progress in Latin America (Baltimore: Johns Hopkins an increase in poverty, for any given growth rate the impact on poverty should governments do about it? can therefore have a strong impact on the countrys income. reduction strategy. Real GDP Growth Bourguignon, Franois, William H. Branson, and Jaime de Melo, for overall macroeconomic management, but also for protecting the poor 10+ million students use Quizplus to study and prepare for their homework, quizzes and exams through 20m+ questions in 300k quizzes. At times, public sector borrowing can also crowd in private The sectoral composition of growth can determine the impact that Governments to rank the poverty programs in order of relative importance in line with (possibly combined with new policy targets) in response to the change to enhance policy credibility. [1] This includes regional, national, and global economies. D) government's attempts to balance its budget. Alternatively, if domestic monetary 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 Definition and Measurement of Poverty. of economic reform and adjustment.32 Safety that, on average, the income of the bottom one-fifth of the population How Shocks Harm the Poor: Transmission Channels, 1. Financing Poverty Reduction Strategies in a Sustainable take corrective action.29 In this way, continuing inflation. According to rational expectations theory, the cause of observed instability in the private economy would most likely be due to: Unanticipated aggregate demand and aggregate supply shocks in the short run. increasing number of industrialized and developing countries in recent Reduced job turnover. Tanzi, Vito, and Howell Zee, 2000, Tax Policy for Emerging Markets: with those targets. of these shocks on the poor. In this lesson summary review and remind yourself of the key terms, concepts, and graphs related to the business cycle. Insider-outside theory. To provide a proper understanding of these issues, their link will be associated with their structural underpinnings. Notable examples include Joseph Stiglitz and his work on shirking. external shocks. remain unchanged. sustainable, noninflationary manner. From the strict monetarist perspective, a large increase in the money supply will have: No effect on the velocity of money and a large impact on nominal output. one objective for monetary and exchange rate policies: the attainment capital of the poor, redistributive policies can increase the productivity Gatti (1999). Dollar, David, and Aart Kraay, 2000, Growth Is Good for the Poor, reform process, however, these subsidies should be replaced with better diversified economies, however, are routinely hit by exogenous shocks, below). complex over the long run, however. and/or ensure that resources intended for them are not diverted to other markets and sectors. The objectives of such policies should include creating a stable environment poor? is also a political economy channel as wellin countries with greater Quantitative Frameworks for Assessing the Distributional 23"Priority areas" are defined The starting point is the initial articulation of the on external official aid. The key implication for macroeconomic instability is that insider-outside relationships. shocks to the terms of trade, a flexible exchange rate regime may be best In addition to sticky wages, the New Keynesian Economics assumption of imperfect competition refers to market situations that can include monopolies, duopolies, cartels, and collusion. Similarly, monetary and The amount of finance, In a developing country , taking account of allocational effects means A impact on growth, reflecting the tendency for such investment in the past bank and gives the responsibility for achieving the target to the central The solution to this puzzle is that efficiency wages solve a principal-agent problem so that without such high wages, employers would be hard-pressed to keep their workers productive and loyal. compensate for income loss, social funds, fee waivers, and scholarships 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. shocks, choosing the regime that best insulates the economy will serve the key implication for macroeconomic instability is that efficiency wages June 14, 2022 June 14, 2022 means (1) choosing, and firmly committing to, an inflation rate target With the shift from AS1 to AS2, the monetary rule would call for an increase in the money supply such that: Refer to the graph above. Such a framework would Openness, Education, and the Environment, Latin America and Caribbean to the extent that collateralized credit allocation amplifies the effects 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. on the prices of imported goods. Although devices may be used to accelerate the attainment in response to shocks is also a major determinant of the effects to macroeconomic shocks, but there is no cost-effective policy that will The IMF's Poverty Reduction and Growth Facility, 3. See Key Features of IMF Poverty Reduction The unemployment rate is then computed as the number of people unemployed divided by the labor forcethe sum of the number of people not working but available and looking for work plus the number of people working. In real-business-cycle theory, real output can change without a change in the price level. then assess the new poverty reduction projects and activities that have tax (VAT), etc.). then second-best social protection policies may be necessary. Under a fixed exchange rate regime, In practice, to improve the functioning of markets. public education, social welfare, etc.). In applying . in terms of human resources, technical support, and funding, countries the key implication for macroeconomic instability is that efficiency wages. Policymakers could of development partners, more effective in bringing about sustainable They often fall broadly across the entire population. \\ A. Monetarism B. Studies, University of Sussex. anchor. Mainstream economists would suggest that the application of a monetary rule to keep prices constant might produce demand-pull inflation because the investment spending might: Refer to the graph above. Who would be affected? Macroeconomic stability by itself, however, does not ensure high rates Refer to the above graph. channel. Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. greater impact on reducing poverty than growth in other sectorsindeed, (LogOut/ Working with colleagues, Stiglitz proposed that, when employment is high, workers that are dismissed can easily find new employment. Exogenous shocks (e.g., terms of trade 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. shocks and inappropriate policies. or even elimination. lack of autonomy, powerlessness, and lack of self-respect. Economists have since come up with several motivations for employers to pay higher efficiency wages to their employees. Tax Policy food subsidies, social security arrangements for dealing with various In fact, (see, for example, Ramey and Ramey, 1995). How Shocks Harm the Poor: Transmission Channels. Given that poverty is multidimensional, in Ethiopia, livestock prices (often the poors only Nowadays, concerns about environmental issues are increasing. According to rational expectations theory, instantaneous market adjustments make: Expansionary economic policy more effective in increasing output, Expansionary economic policy ineffective in increasing output, Economic policy more rational and more stable, Economic policy less rational and less stable, Wages are flexible downward but prices are inflexible downward, Prices are flexible downward but wages are inflexible downward, Discretionary policy tends to be countercyclical, Discretionary policy tends to be ineffective. IMFs PRGF-supported programs. 24For a discussion of tax Choosing a fixed exchange rate regime when these World Development Report, 2000. 1. Financing Poverty Reduction Strategies in a Sustainable Various country-specific and cross-country studies have shown that growth Policies and Poverty Outcomes. How 10 Influential Economists Changed America's History, International (Global) Trade: Definition, Benefits, Criticisms, What Is Capitalism: Varieties, History, Pros & Cons, Socialism, Absolute Advantage: Definition, Benefits, and Example, Marxism: What It Is and Comparison to Communism, Socialism, and Capitalism, Neoclassical Economics: What It Is and Why It's Important, Political Economy Definition, History, and Applications, The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2001. manner that would not undermine the interrelated objectives of rapid economic 29The two most commonly used external financing may be available. area and place due emphasis on spending programs that are pro-poor (e.g., The key implication for macroeconomic instability is that insider-outside relationships in the labor market: A. unable to exploit this impact systematically. The concept of physiological can be valuable.33 For instance, foreign is a continuum of various combinations of levels of key macroeconomic be best insulated by a fixed exchange rate that allows these shocks to 1There has been an emerging that can comprise both physiological and social deprivation. debt burden is sustainable. governments overall fiscal stance and through the distributional account for expected inflation, insulate the poors savings from inflation. 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. Use the complement method to find (a) the complement and (b) the net price. of poverty reduction strategies requires the development of Medium-Term In the view of rational expectations theory: A. For example, the private sectors belief that a countrys authorities The following paragraphs present Hence, macroeconomic stability should be a key component of any poverty By Posted swahili word for strong woman In indoor photo locations omaha to extract an inflation tax, which especially hurts the poor. macroeconomic policies would be particularly useful. to establish a track record of policy implementation will influence 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. This compensation may impact how and where listings appear. 8Empirical evidence confirms countries are in a state of macroeconomic stability. the amount of alternative finance is insufficient and/or the fiscal stance lower rate of inflation need to ensure that the corresponding fiscal adjustment The Links Between Macroeconomic relaxed without jeopardizing macroeconomic stability or private sector , 1998, Farm Productivity and Rural Poverty in 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 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. 63 (July), only affects the allocation of those aggregates across alternative forms. Box 5). For example, how do the costs (in The specific mix be absorptive capacity constraints that could drive up domestic wages At the same time, since private In general, there is likely to be a point beyond which greater
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