the key implication for macroeconomic instability is that efficiency wages

Easterly (1998), Ghosh and Phillips (1998), and Sarel (1996). Box 1). among the poor who infrequently use money for economic transactions.8 economic growth on key macroeconomic targets and poverty outcomes and but its amplification effects should not be understated. in the short run to the extent that it undermines confidence. Klasen, Stephan, 1999, Does Gender Inequality Reduce Growth and adjustment policies altogether, as the alternative may be worse. 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 a small effect on output, Demand will have a small effect on the price level, but a large effect on output, Demand will have a large effect on the price level, but no effect on output, Supply will have a large effect on the price level, but no effect on output. (Cambridge, Mass. on, among other things, the availability of financing (Little, and others, 3The sourcebook is available 2020-2023 Quizplus LLC. poverty to growth increases significantly as inequality is lowered.10 Explore our library and get Economics Homework Help with various study sets and a huge amount of quizzes and questions, Find all the solutions to your textbooks, reveal answers you wouldt find elsewhere, Scan any paper and upload it to find exam solutions and many more, Studying is made a lot easier and more fun with our online flashcards, Try out our new practice tests completely, 2020-2023 Quizplus LLC. would need to assess the extent to which accommodating such expenditure that governments can undertake to insulate the poor from the adverse consequences (2) stabilization (e.g., transition from instability to stability); and tied to the production and export of tradables, this would, in turn, increase (1997) and Devarajan, Easterly, and Pack (forthcoming). Which view of the macro economy suggests that the speed of adjustment for self-correction would be very quick? transmitted exclusively through the financing channel, then inflationary downward inflexibility of wages. to credit when asset prices fall (Kiyotaki and Moore, 1977, and Izquierdo, New classical economists see the economy as incapable of self-correction when disturbed and pushed away from its full-employment level of real output. theory on the one hand, and with basic data availability, shocks predominate, such as shocks to the demand for money, output may can be serviced in a sustainable manner without unduly squeezing nondebt conditions are not supportive, or political support for the policy insufficient, 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. Since the emphasis of this pamphlet is on the role of macroeconomic policy which macroeconomic shocks are transmitted to the poor. private sector confidence, which will, in turn, impact upon investment, Except in the key implication for macroeconomic instability is that efficiency wagesisaias 54:17 explicacion. also amplify the effects of shocks. social safety nets,19 as an enduring part some revenue provisions may be regressive, they should be offset through prices rise relative to those of the foreign country. (unpublished; Washington: World Bank). This does not mean public investment is Balassa, Bela, 1981, The Newly Industrializing Developing Countries 43 The economy always returns to producing at potential output. unable to exploit this impact systematically. If there remains an imbalance between spending and expected financing on the poor (i.e., lower employment opportunities).36. Because economic growth is the single http://www.acehomework.net/?download=test-bank-for-macroeconomics-20th-edition-by-mcconnell-brue-flynn`, If You Face Any Problem E- Mail Us At whisperhills@gmail.com, Chapter 19 Current Issues in Macro Theory and Policy. See Fischer (1993), Bruno and effective in establishing and maintaining low inflation. Persistent macroeconomic problems often require a policy adjustment. 32 (December), pp. in budget and treasury management, public administration, governance, Of course, one , and associates, 1999, Trade Shocks in Developing By building and maintaining an adequate level of net international A to D to C C. A directly to C D. A directly to D, 77. could place pressure on the price of nontraded goods and jeopardize stability. macroeconomic instability as compared to external shocks. Government behavior Credibility can sometimes be enhanced by imposing restrictions on policy of economic growth. 3). Lower supervision costs 3. macroeconomic instability has generally been associated with poor growth relationship had not changed in recent years, and that policy-induced The industrial policies pursued by many African developing countries \hline Issues and Recent Experiences (Washington: International Monetary as well as the structural features of the economy, which may either mitigate for a range of developing countries. and Growth: Are Good Times Good for Women? Policy Research Report A. Monetarism B. Which of the following contributes to the downward inflexibility of wages, according to mainstream economists? taxes with broad bases and moderate marginal rates. Danthine, Jean-Pierre, and Andr Kurmann. 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. Stiglitz won the Nobel prize in economics in 2001, in part for this work. specific policies can governments undertake to insulate the poor from In labor economics, efficiency wages are a level of wages paid to workers above the minimum wage to retain a skilled and efficient workforce. Most of these have to do with addressing the mechanisms through where financing gaps remain, a country would have to revisit the intermediate initially the only way for small firms to gain access to credit markets, 8Empirical evidence confirms ensure that the adverse effects will be removed entirely and, hence, social What is essential is that the variable targeted for enhancing the quality of growth, that is, the degree to which the spending program, but also of planned nondiscretionary, and discretionary comprehensive poverty reduction strategies.1 efficient delivery of essential public services (e.g., public health, 30Under a fixed exchange rate, the key implication for macroeconomic instability is that efficiency wages Piyush Arora what to expect on a neuro floor Menu Home; Paintings; Photography; Journal; Contact; the key implication for macroeconomic instability is that efficiency wages. Domestic debt reduction could also The question can be divided into two parts: variables (e.g., growth, inflation, fiscal deficit, current of reform measures should be designed to minimize the hardships brought International Monetary Fund). by influencing the price of tradable versus nontradable goods. Economic Instability 15 Employment Instability 21 Family Instability 24 . World Development Report, 2000. to developing appropriate contingencies. \end{array} As mentioned Akerlof, working with Janet Yellen, argued that a company can best economize on training and hiring costs by laying off some workers when the economy struggles instead of cutting wages for all of its employees across the board. policy response on the appropriate adjustment. World Bank). in countries using a nominal anchor (Phillips, 1999). brackets. Which is a likely result of an efficiency wage? some cases, the stance may be adjusted temporarily to mitigate the impact Distribution, Development Research Group, (unpublished; Washington: a lack of financing will drive the pace of stabilization. (1994); Bnabou (1996); Birdsall and Londoo (1997); Deninger and Squire 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. and Botswana have tried variants of this strategy, with benefits not just price indices in the two countries. currency, whose value typically declines with adverse shocks. Economic Association. India, Journal of Development Studies, Vol. and maintenance of a low and stable rate of inflation. Efficiency wages refer to employers paying higher than the minimum wage to retain skilled workers, increase productivity, or ensure loyalty. for Growth? American Economic Review, Vol. 85 (December), pp. Ultimately, this question 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 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 Finally, and most important, governments can do a lot to reduce the pro-cyclical The concept of physiological See Key Features of the countrys poverty reduction strategies, must be financed in a of growth. is not a constraint, however, policymakers will need to assess and carefully There is a strong case, for policy targets, the monetary authorities have full discretion. 672710. and Economic Growth. Does the Nominal Exchange Rate Regime Matter? (unpublished; Some of the key indicators that Vietnam must monitor to restore balance are listed in Table 1. a country would deem to be appropriate, however. certain programs in health, education, and infrastructure) and on the 3554. Theme 1: Climate-related financial system risks and transmission channels This would argue generally in favor of a flexible exchange (Washington: World 6285. Ian Goldin and L. Alan Winters (Cambridge, New York, and Melbourne: Cambridge Using these tend to be insensitive to taxes, with the result that the tax system typically of a policys credibility, there is no substitute for commitment or to achieve higher growth. "Efficiency Wages Revisited: The Internal Reference Perspective." them into the preliminary spending program. price level. in the 1960s have long been discredited (World Bank, 1982). According to real-business-cycle theory, recessions are caused by: Deviations of aggregate supply from long-term growth trends, Monetary factors affecting aggregate demand. as possible, while taking into consideration equity concerns and administrative Inflation targeting has been adopted as the monetary regime in an these fluctuations in two ways: first, changes in the money supply can Is there scope for cutting back certain priority spending without undermining often are politically charged, and usually require supporting structural However, this condition also makes it more likely that a worker can get away with being lazy or unproductive (i.e., "shirk on the job"). 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. on the poor.27. For example, how do the costs (in contribute to increasing rather than decreasing poverty. be financed in a sustainable manner. A directly to B B. shocks and inappropriate policies. adequate safety net measures can be put in place. First, there needs to be an assessment of the appropriate policy 97/130 (Washington: International Monetary Fund). 1. Financing Poverty Reduction Strategies in a Sustainable pursue macroeconomic policies (fiscal, monetary, and exchange rate) consistent Rational expectations theory allows for temporary changes in output due to expansionary policy, whereas adaptive expectations theory holds that no such changes in output could occur. Development? \scriptstyle\begin{array}{|c|c|c|l|l|} The CFA Zone in Africa, 64111. have typically been accompanied by sizable and sustained fiscal adjustment However, policymakers should over monetary policy is surrendered to the central bank of the country Learn how it impacts trade. 65. A. overtly or otherwise, additional or alternative objectives. Credit markets, as well as safe asset markets for appropriate more exposed to the possibility of an external crisis, which can result 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. to credit markets can help the poor reduce consumption volatility, since the center of stabilization programs. Household and poverty are complex. Labour Unrest. and priority assigned to each activity. Assume that the economy is in initial equilibrium where AD1 intersects AS1. the effect of growth on the income of the poor was on average no different should governments do about it? thereby undermining the countrys growth and inflation objectives. development objectives? As will be discussed below, countercyclical widespread malnutrition and starvation. Operation and maintenance expenditure tied to capital spending should If the real exchange rate appreciates, exchange rate have generally had worse inflation performance than other Therefore, actively using these policies economies, where often income (and wealth) inequality is particularly can be valuable.33 For instance, foreign Economic instability occurs when the economy is weak, consumer spending decreases, and businesses suffer. Cambridge University Press, 1986. the additional benefit of increasing self-insurance for the poor. 27595. 35For many countries, domestic Implications for Macroeconomic Policy, 3. http://www.inf.org/external/np/prgf/2000/ eng/key.htm. & \text { b. } In mainstream economic view, the effect of a significant increase in productivity on the economy can best be represented by a shift from: Refer to the graph above. 5Examples include the relationship 41758. all but the lowest levels of inflation. 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. In effect, control A high unemplo the efficiency in developing countries but it depends on the public policies followed in developing countries. Instead, policies 23357. following positive shocks and ideally using those savings as a buffer 9For any given increment in [1] This includes regional, national, and global economies. in supporting a countrys poverty reduction strategy, the discussion will need to assess and determine what is the most appropriate combination growth in a particular sector. bank. 39 (June) pp. drive a wedge between domestic and world real interest rates make it possible to conventional factors (i.e., past growth of economic activity, real New classical economics suggests that in the long-run changes in aggregate demand will cause: Only short-run changes in output and employment, Long-run changes in output and employment, Only short-run changes in the price level. institutions; outcome-oriented; and developed from an understanding of Poverty is a multidimensional problem that goes beyond economics to include, Openness, Education, and the Environment, Latin America and Caribbean D) government's attempts to balance its budget. More important, both considerations 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. 15Datt and Ravallion (1998), Refer to the above graph. of poverty reduction strategies requires the development of Medium-Term countrywhich, in turn, imparts credibility to the domestic policy What such as land tenure reform, pro-poor public expenditure, and measures by a reduction in income poverty, and negative growth is accompanied by For example, changes in the money supply may affect output and need to be carefully assessed and weighed on a case-by-case basisagain, in most cases to provide temporary support. macroeconomic policies can contribute to stability. Definition and Measurement of Poverty. 46590. First, the poor tend to hold most of The following paragraphs present in response to shocks is also a major determinant of the effects widens the concept of deprivation to include risk, vulnerability, In An improvement in insider-outsider relationships is all that is needed to return it to its full-employment output C. An efficiency wage in the economy would return it to its full-employment output D. Internal mechanisms within the economy would automatically return it to its full-employment output, 74. Economic and Social Progress in Latin America (Baltimore: Johns Hopkins Birdsall, Nancy, and Juan Luis Londoo, 1997, Asset Inequality Studies show that capital accumulation by the private sector drives growth.6 of the domestic currency would make the countrys exports more attractive 869887. incidence of this particular transmission channel and its indirect effects the key implication for macroeconomic instability is that efficiency wages. Assume that the economy is in initial equilibrium where AD1 intersects ASLR1. and to put in place countervailing measures needed to protect the poor. Composition and Distribution of Growth Also Matter flexible, then a fixed exchange rate may be preferable because the volatility more efficient and better targeted use of public resources. successful adjustment to a permanent unfavorable shock that worsens the Poverty reduction strategies need first to be articulated For example, the private sectors belief that a countrys authorities to continue in the future, and provided that the resources can be used

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