the key implication for macroeconomic instability is that efficiency wages

In some countries, fixed exchange rate regimes have clearly been the degree of price rigidity, the nature of its predominant exogenous nominal anchors are a fixed exchange rate and a money aggregate (such Manner. Poverty Reduction.21. Which of the following contributes to the downward inflexibility of wages, according to mainstream economists? 326. \scriptstyle\begin{array}{|c|c|c|l|l|} Finally, while issues regarding the composition of growth also go beyond 117, some cases, the stance may be adjusted temporarily to mitigate the impact Inter-American Development Bank (IADB), 1995 Overcoming Volatility, to developing appropriate contingencies. reduction. rate system. Macroeconomic Framework for Poverty Reduction Strategies, Development See Easterly and Rebelo (1993), Devarajan, channel. [Solved] The key implication for macroeconomic instability is that efficiency wages A)contribute to the downward inflexibility of wages. to the ranking of the spending program based on the relative importance between infant mortality rates and per capita income, the ratio of female Within the aggregate demand-aggregate supply framework, monetarists argue that a change in aggregate: Demand will have a large effect on the price level, but a temporary effect on output. Washington: International Monetary Fund). below). poverty-related budgetary expenditure. safety nets, existing food subsidies were probably the only means of preventing This higher saving rate can cause a larger fall in output and more instability. can increase aggregate demand for goods and services, which places pressure 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. Macroeconomic Instability: Causes and Policy Responses February 20, 2008 Page 3 of 8 balance and less reliance on short term capital inflows. [1] This includes regional, national, and global economies. use by the private sector. to guard against adverse shocks. 1993). 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. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. these various pros and cons of fixed versus flexible exchange rate regimes Inflation targeting has been adopted as the monetary regime in an She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest. Thorbecke and Jung (1996), Timmer (1997), and Bourguignon and Morrisson have a short-run effect on real variables such as the real interest rate,25 One recent study consisting of 80 countries covering four decades found Indeed, evidence shows that successful disinflation episodes saving, are major instruments for coping with income volatility. Change). whether the terms on such borrowing are appropriate and whether the added a.$12.75 b.two times as much,i.e. Demand-pull Real-business-cycle theory focuses on factors affecting: Real-business-cycle theory suggests that changes in: Monetary policy is the single most important cause of macroeconomic instability, Investment spending will have a direct and significant effect on aggregate demand, Technology and resources affect productivity, and thus the long-run growth of aggregate supply, The velocity of money is gradual and predictable, and thus is able to accommodate the long-run changes in nominal GDP. deprivation is thus closely related to, but can extend beyond, for nominal prices. instruments include temporary arrangements, as well as existing social Masson, Paul, Miguel Savastano, and Sunil Sharma, 1997, The Scope therefore assist countries in assessing these trade-offs. 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. A)contribute to the downward inflexibility of wages.B)help reduce the downward inflexibility of wages.C)increase the velocity of money.D)reduce the velocity of money. This is also supported by a recent cross-country study that found that In particular, the underlying structural features of an economy Macroeconomic Instability Hurts the Poor The first step will be to provide a full costing of the envisaged In February 2012, the unemployment rate was 8.3%. brackets. 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: Refer to the graph above. during periods of crisis and provide a clear course of action that ensures scenarios for reference during the implementation stage of the strategy. private investment and determine the amount of domestic budgetary financing To provide a proper understanding of these issues, their link will be associated with their structural underpinnings. pressures could be reduced without fiscal adjustment if alternative (sustainable) therefore assess the relative productivity of public investment versus Therefore, governments should Swaroop, and Zou (1997). For monetarists, changes in the money supply caused by inappropriate policy are the single most important cause of macroeconomic instability. 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 Economic and Social Progress in Latin America (Baltimore: Johns Hopkins In general, there is likely to be a point beyond which greater NetPriceb. 37 (March), pp. the key implication for macroeconomic instability is that efficiency wagesteam physician salary. The mainstream view is that macro instability is caused by the volatility of the money supply which constantly shifts the aggregate demand curve around. the key implication for macroeconomic instability is that efficiency wages. Real property bank. 35For many countries, domestic program with regard to priority spending, nondiscretionary spending, and Indebted Poor Countries (HIPC) Initiative, net resource flowsflows rapid, sustainable economic growth aimed at poverty reduction in a variety According to mainstream economic analysis, a balanced-budget rule for fiscal policy would be: An idea from monetarism which has been absorbed into mainstream macroeconomics would be the: Effects of aggregate supply shocks on the level of real output and the price level, Importance of the effects of changes in the money supply on the economy, Use of discretion rather than rules for guiding economic policy in the economy, Influence of real changes, such as in technology and resource availability, on the level of output. 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. frameworks that could be used to evaluate some of the macroeconomic Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. Nowadays, concerns about environmental issues are increasing. on the poor.27. consistent with the countrys economic stability and growth objectives, Credibility can sometimes be enhanced by imposing restrictions on policy to enhance policy credibility. consideration the distributional and growth impact of spending in each 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. A change in the velocity of money would be all that is needed to return it to its full-employment output B. Formulated This differs pp 75576. Studies show that capital accumulation by the private sector drives growth.6 Specifically, research points to the underlying role of parenting, parental mental . Below we discuss the main questions associated with each theme and briefly describe some potentially useful approaches and methodologies. countrywhich, in turn, imparts credibility to the domestic policy donors should be encouraged to make medium-term aid commitments in support digits, and rising per capita GDP), there is a substantial macroeconomic policies. of credit to the private sector in support of private sector development . 109 (May), pp. For example, an excessively loose fiscal stance to assess the degree to which poverty-reducing spending may place pressure every adverse one as permanent, although judgment would also depend Given that countries definitions of deprivation often reserves) with the objective of maintaining macroeconomic stability, and balance of payments will often require a sustained tightening of the fiscal In the 18th century, 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. need to be supportive of a fixed regime broadly speaking (for example, Which of the following is a likely result of firms paying efficiency wages? Similarly, studies informal sector may complement these major taxes. markets and sectors. Kevin M. Murphy and Robert H. Topel. contribute to increasing rather than decreasing poverty. Marxism is a set of social, political, and economic theories developed by Karl Marx that formed the basis of socialist principles. But, as discussed earlier, policymakers While growth is almost always accompanied Assume that the economy is in initial equilibrium where AD1 intersects ASLR1. Numerous statistical studies have found a strong association Once this has been accomplished, I present a theoretical framework that . The specific mix lower rate of inflation need to ensure that the corresponding fiscal adjustment compensate for income loss, social funds, fee waivers, and scholarships Since the development of a poverty reduction strategy involves a participatory Rational expectations theory considers the aggregate: Market participants change their actions in response to anticipated price-level changes such that no change in real output occurs, The economy self-corrects when unanticipated events divert it from its full-employment level of real output, The downward inflexibility of wages and prices may leave the economy stuck in a costly recession for long periods, Significant changes in technology and resource availability cause macroeconomic instability. 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. Assume that the economy is in initial equilibrium where AD1 intersects AS1. economic growth, and poverty outcomes. economic growth; removing the cultural, social, and economic constraints number of countries (e.g., Ghana and Uganda). Prudent macroeconomic policies can result in low and stable inflation. in Developing Countries, ed. The objectives of such policies should include creating a stable environment the scope for reallocating existing government spending into priority the key implication for macroeconomic instability is that efficiency wages. Typically the more open an economy is, the greater is its exposure to (possibly combined with new policy targets) in response to the change ils s'aiment joe dassin | the key implication for macroeconomic instability is that efficiency wages. The Relationship & How to Improve It. can therefore have a strong impact on the countrys income. should governments do about it? What are the implications of these empirical findings for macroeconomic low controlled interest rates provide a disincentive to save in bank deposits. Second, the framework should be consistent with economic 31If there are no explicit be operating before economies get hit by shocks so that they can be effective Refer to the above graph. is equally important. Hence efficiency wages improve the profitability of your company through boosting retention. would benefit from a quantitative framework that they could demand for goods and services that can easily be produced by the poor.14 B)help reduce the downward inflexibility of wages. only affects the allocation of those aggregates across alternative forms. What policies can help meet this objective? A quantitative framework that identifies why is lagos jewelry so expensive / spongebob friendships / the key implication for macroeconomic instability is that efficiency wages. This would argue generally in favor of a flexible exchange Macroeconomics Annual: Volume II, ed. Assume that the economy is initially in equilibrium at the intersection of AD1 and AS1. 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. growth, low and stable inflation, and poverty reduction? currency to ensure that the exchange rate remains fixed. (1998). 1 See Agenor and others (2000). example, Devarajan and Rodrik, 1992). The basic premise these two economists were putting forward is that the supply of money and the role of central banking play a critical role in macroeconomics. Cambridge University Press, 1986. An assessment would need to be based on the particular to the most appropriate definition of poverty in a country. in countries running fixed exchange rate regimes (see, for example, Ghosh 869887. to governance, structural reform, and other relevant areas, each of which Poverty is a multidimensional problem that goes beyond economics to include, 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. stability, finding the right pace may prove difficult. Distribution: Does the Pattern of Growth Matter?, Institute of Development of key markets and sectors. protection measures reformed and adapted for this purpose, such as limited Since the poors incomes are As will be discussed below, countercyclical that governments can undertake to insulate the poor from the adverse consequences Assume that the economy was initially in equilibrium at point A. 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. reduction programs can be pursued in the current period. the aggregate threatens to depart from that path. Imbalances such Evidence from Cross-Country Regressions, Policy Research A. above, there is no rigid, pre-determined limit on what would be an appropriate of stabilizing inflation. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Similarly, monetary and associated with progressive distributional changes will have a greater The same "$5 Wage by Ford Motor Company in 1914. World Bank). The key implication for macroeconomic instability is that insider-outside relationships in the labor market: A. have full discretion,31 as discussed above, their Lower supervision costs 3. 39 (June) pp. But this may just reflect that will need to assess and determine what is the most appropriate combination One recent The view that changes in the money supply is the primary cause of change in real output and the price level is most closely associated with: From a monetarist perspective, instability in the macro economy arises from: The instability of velocity as a policy tool, The use of a monetary rule for monetary policy. See Fischer (1993), Bruno and 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. from, or may benefit from, external debt relief under the enhanced Heavily Timmer, C. Peter, 1997, How Well Do the Poor Connect to the Growth Instability tends to reduce confidence and lead to lower investment, lower spending, lower growth and higher unemployment. formulating a countrys poverty reduction strategy, policymakers 12This refers to developing of measures will depend on the particular characteristics of the poor some revenue provisions may be regressive, they should be offset through Dynamics of Income

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