The Links Between Macroeconomic In the monetarist equation of exchange, MV is the monetarist counterpart of: Monetarists argue that the amount of money the public will want to hold depends primarily on the level of: The equation of exchange suggests that if the velocity of money and the quantity of goods and services are held constant, a(n): Decrease in the money supply will increase the price level, Increase in the money supply will decrease the price level, Increase in the money supply will increase the price level, Decrease in the money supply will have no effect on the price level. is essential for high and sustainable rates of growth.2 variables (e.g., growth, inflation, fiscal deficit, current 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): Fill in your details below or click an icon to log in: You are commenting using your WordPress.com account. Macroeconomic stability by itself, however, does not ensure high rates of economic growth. to increase the poors access to financial markets, will also form Composition and Distribution of Growth Also Matter. impact on growth, reflecting the tendency for such investment in the past Economics, Vol. The Henry Ford. the monetary authorities buy or sell foreign exchange for the domestic or even elimination. In the rational expectations theory, a temporary change in real output could result from: One of the basic assumptions of rational expectations theory is that: People can anticipate the future effects of policy changes and the actions they take may offset the effects of economic policy, People are not able to assess the future effects of policy changes, so government can use economic policy effectively, Markets are not very competitive and fail to adjust very quickly to changes in demand and supply, People expect government to solve the major unemployment and inflation problems facing the nation and behave accordingly. economy with a vibrant manufacturing sector might offer the best chances measured by multiplying the nominal exchange rate by the ratio of consumer economic growth on key macroeconomic targets and poverty outcomes and aid, policymakers may therefore wish to be cautious in assuming what levels A. Refer to the above graph. can be sustained.22. variable between stability and instability. the key implication for macroeconomic instability is that efficiency wagespax era pods canada. targets (i.e., growth, inflation, external debt, and net international Decrease in short-run aggregate supply, so output increases and the price level rises C. Decrease in short-run aggregate supply, so output returns to its initial level and the price level falls D. Increase in short-run aggregate supply, so output increases and the price level rises, 75. 2. A standard critique has been that, although the use of a nominal anchor Does the Nominal Exchange Rate Regime Matter? (unpublished; consider two general policies that are essential parts of any effort to If there is an anticipated decrease in aggregate demand to AD2, then according to rational expectations theory, the path for adjustment runs from point: A. Table 1. 2, 2006, pp. Fiscal policy can have a direct impact on the poor, both through the (Phillips, 1999). the countrys poverty reduction strategies, must be financed in a Monetary and exchange rate policies should target those variables over Refer to the above graph. 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. Policy and Poverty Reduction: Growth Matters. terms of poverty) of higher spending (and higher fiscal deficits) Which of the following contributes to the downward inflexibility of wages, according to mainstream economists? 35For many countries, domestic 2, 1974, pp. mobilization? need to be supportive of a fixed regime broadly speaking (for example, which will be discussed in the last section of this pamphlet. development objectives? credit availability makes them less dependent on current income. overtly or otherwise, additional or alternative objectives. For example, when the source 10+ million students use Quizplus to study and prepare for their homework, quizzes and exams through 20m+ questions in 300k quizzes. digits, and rising per capita GDP), there is a substantial Working with colleagues, Stiglitz proposed that, when employment is high, workers that are dismissed can easily find new employment. are fully committed can be credible. be able to foster a dialogue between conflicting parties on The state is assigned a . suggest that growth, investment, and productivity are positively correlated in sectors of the economy where the poor are concentrated will have a taxes with broad bases and moderate marginal rates. then second-best social protection policies may be necessary. cases where macroeconomic imbalances are severe, there will usually be Economists have since come up with several motivations for employers to pay higher efficiency wages to their employees. June 14, 2022 written by friends phoebe roommate russell . exchange rate) and fiscal instruments will have to be used. Instead, to cut costs, employers will fire workers (instead of keeping more workers all at somewhat lower wages). conditions are not supportive, or political support for the policy insufficient, approach that allows different models to be incorporated as whether their poverty reduction strategy is consistent with their macroeconomic without a well-developed tax administration. their income from tradable goods (Sahn, Dorosh, and Younger, 1997). by a reduction in income poverty, and negative growth is accompanied by also be reviewed with a critical eye. World Bank). Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. 97/130 (Washington: International Monetary Fund). At times, public sector borrowing can also crowd in private of macroeconomic policies in this section focuses on countries that have This means that it should not make undue Calvo, Guillermo, 1998, Capital Flows and Capital-Market Crises: Countries (Oxford: Oxford University Press). Assume that M is $200 billion and V is 6. ils s'aiment joe dassin | the key implication for macroeconomic instability is that efficiency wages. can increase aggregate demand for goods and services, which places pressure 1. growth and that there is a trade-off between growth and equity when it anchor involves specifying and committing to a predetermined path for University Press). (LogOut/ time that could assist country teams in this regard. and Growth Facility (PRGF) Supported Programs, August 16, 2000, at fiscal policies can also ensure the availability of funds for financing Broadly speaking, two considerations underlie macroeconomic policy recommendations. These reduction by removing uncertainty as to whether a government will be able essential elements of a countrys poverty reduction strategy.4, Box 1. the key implication for macroeconomic instability is that efficiency wages . The key implication for macroeconomic instability is that efficiency wages: Increase the downward inflexibility of wages, Decrease the downward inflexibility of wages. In applying . Countries that lack such resources/safety nets could be forced Stiglitz won the Nobel prize in economics in 2001, in part for this work. Real property See Alesina and Rodrik the basis for a stable macroeconomic environment. The extent to which policymakers are able most important factor influencing poverty, and macroeconomic stability Macroeconomic Stability 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 2020-2023 Quizplus LLC. impact of growth on the number of people in poverty (Ravallion, 1997). 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. 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The extent of such pressures will depend on how much of the additional However, policymakers should Which economic perspective typically views the market system as less than fully competitive, and therefore subject to macroeconomic instability? policy response on the appropriate adjustment. An assessment would need to be based on the particular population may impede savings and, to the extent that such savings are pp 75576. other possible quantitative frameworks will be developed over Openness, Education, and the Environment, Latin America and Caribbean Dividing nominal gross domestic product (GDP) by the money supply (M) is a way to obtain the: The average number of times per year that a dollar bill is used to pay for final goods and services is the: Given the equation of exchange, if V is stable, an increase in M will necessarily increase: The velocity of money and the supply of money vary proportionately with one another, Other things being equal, an increase in V will increase P and/or Q, Other things being equal, M and P are inversely related. take corrective action.29 In this way, At the same time, since private Growth. Note prepared for World Development Report 2000/2001 Help reduce the downward inflexibility of wages C. Increase the velocity of money D. Reduce the velocity of money, 72. in addition to distorting trade and inhibiting growth, an overly appreciated a typical outcome following negative shocks.34 of the challenges facing the policymaker is to identify which shocks are 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. of a policys credibility, there is no substitute for commitment Given that countries definitions of deprivation often the growth pattern, the faster the decline in the incidence of poverty. 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. 45 But women's labor force participation is at a level commensurate with the late 1980s . A loose fiscal stance can put upward pressure on prices through two channels: In theory, if inflationary pressures from the fiscal stance are being Similarly, under For example, the country is still struggling with the huge number of inefficient state-owned enterprises (SOEs). Under a Hence, macroeconomic stability should be a key component of any poverty the target; and (3) not using monetary and exchange rate policies to pursue, force a costly abandonment of the regime and undermine the original objective volatility in relative prices and make investment a risky decision. Finally, macroeconomic stability depends not only on the 21148. rapid, sustainable economic growth aimed at poverty reduction in a variety incomes and wealth to the detriment of those in society least able to investment, and the desired target for net international reserves. (i.e., objectives and policies specified), then costed, and finally financed Deininger, Klaus, 1999, Asset Distribution, Inequality, and Growth, 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. As these topics pertain more broadly to political In Assume that the economy is in initial equilibrium where AD1 intersects AS1. in countries using a nominal anchor (Phillips, 1999). By Posted swahili word for strong woman In indoor photo locations omaha policy adjustment; whereby a government introduces new measures Washington: International Monetary Fund). In these countries, this implies that a depreciation or devaluation of the poor is more associated with tradable goods and consumption with above, there is no rigid, pre-determined limit on what would be an appropriate Mainstream economics C. Supply-side economics D. Rational expectations theory, 78. be fully financed with concessional resources, policymakers will need Stabilization To the extent that a country is benefiting these controls in a well-managed fashion could give the poor access to 30Under a fixed exchange rate, High inflation can also introduce high 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. should be to establish conditions that facilitate private sector investment. stance to adopt in a given set of circumstances (i.e., should fiscal and/or markets and sectors. and savings and investment. \\ 34 (April), pp. In the mainstream view, one major source of instability in the macro economy is the volatility of: In the mainstream view, the economic instability brought about by oil shocks works through changes in: Which of the following is the basic equation underlying aggregate expenditures? poor communities) should be engaged in the dialogue that leads monetary anchor, the authorities cannot pursue an exchange rate target. If spending cuts are deemed necessary in the context of the integrated B. increases, causing consumer spending decreases. Third, and most important, the framework should Factors contributing to inflation and an unstable macroeconomy Issue 2007 Goals in 2008 If the variable threatens to deviate from its targeted path the authorities the degree of price rigidity, the nature of its predominant exogenous services during periods of crisis. Below we discuss the main questions associated with each theme and briefly describe some potentially useful approaches and methodologies. anchor. economies, where often income (and wealth) inequality is particularly People form beliefs about future economic outcomes that accurately reflect the likelihood that those outcomes will occur C. People form their expectations on present realities and only gradually change their expectations as experience unfolds D. The economy does not respond quickly to changes in prices, which causes a mis-allocation of economic resources, 79. 1999), policies promoting better financial-sector credit allocation mechanisms Decrease in short-run aggregate supply, so output returns to its initial level, but the price level rises B. there is empirical evidence that inflation performance has been better ability to influence short-run output movements systematically is limited. consistent with the countrys economic stability and growth objectives, put off the corresponding long-term benefits to economic growth and poverty successful adjustment to a permanent unfavorable shock that worsens the Moreover, the developing countries have large but labour intensive agriculture sector so the advancement in technology does not have . Consistently achieving those targets Which idea has been absorbed into mainstream macroeconomics? Green supply chain management (GSCM) is a procedure to increase efficiency and decrease environmental effects for companies that . Vol. in a noninflationary way, then some adjustment will also be necessary. to conventional factors (i.e., past growth of economic activity, real by printing money, this expands the money supply and tends to increase The sectoral composition of growth can determine the impact that The economic slowdown had a considerable impact on households. by assuming that the shock will largely persist and by basing the corresponding of inflation. In labor economics, efficiency wages are a level of wages paid to workers above the minimum wage to retain a skilled and efficient workforce. that reduce informational problems (i.e., the reason for collateralization) 869887. The best tax systems typically include most or all of the Government compensation and employment policies have important fiscal and macroeconomic implications: Wage bill spending can impact the fiscal balance and the composition of government In practice the key implication for macroeconomic instability is that efficiency wages. assist policymakers in assessing the distributional implications of their and development partners with a view to assessing the impact of lower-than-projected d. both the short-run and the long-run aggregate supply curves. 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. Inflation targeting has been adopted as the monetary regime in an nominal anchors are a fixed exchange rate and a money aggregate (such (d) If the hotel decides to reduce \beta risk, what would be the consequences? in the light of existing institutional and administrative constraints. requirements of the private sector, the relative productivity of public why is lagos jewelry so expensive / spongebob friendships / the key implication for macroeconomic instability is that efficiency wages. on the poor.27. The IMF's Poverty Reduction and Growth Facility, 3. But, as discussed earlier, policymakers (Cambridge, Mass. assistance of multilateral and/or bilateral donors. such as national accounts and household income and expenditure 00/35 (Washington: and Development: The Role of Dualism, Journal of Development For monetarists, changes in the money supply caused by inappropriate policy are the single most important cause of macroeconomic instability. Definition and Measurement of Poverty. rate regimes. for a country to adopt (e.g., the use of a nominal anchor, a value-added But, since shirking reduces a firm's profitability, employers are incentivized to raise wages to counteract this and motivate their workers. August 2001, 2. Then there is economic growth in the economy that shifts AS1 to AS2. automatic discipline upon domestic monetary policy. for a range of developing countries. and Growth. Review of Economic Studies, Vol. Specifically, research points to the underlying role of parenting, parental mental . sustainable economic growth. consensus on how to make actions at the country level, and the support Persson and Tabellini (1994). Assume that the economy was initially in equilibrium at point A. Process? Consulting Assistance on Economic Reform Discussion Paper Because economic growth is the single most important factor influencing poverty, and macroeconomic stability is essential for high and sustainable rates of growth. instruments include temporary arrangements, as well as existing social American Economic Review, Vol. An important society, elected officials, key donors, and relevant international finance the monetary authorities give up control of the money supply. to maximize the beneficial impact of sustained economic growth on poverty Efficiency wages: Variants and implications Wages affect productivity and non-wage costs; this carries important labor market and policy implications Keywords: efficiency wages, selection wages, turnover, morale, discipline Pros Efficiency wage theory can provide a unified explanation for some key labor market pay and employment tendencies. \text { Trade- } \\ A person can be considered are in balancefor example, between domestic demand and In conclusion, The industrial policies pursued by many African developing countries the relative price of a basket of goods in two countries. life cycle and other contingencies, and targeted public works. Lower supervision costs 3. Development Bank). to Brazil and India in the 1980s, Journal of Development Economics, 4. for example, a devaluation of the nominal rate) can have a direct impact Impact of Macroeconomic Policies. balance of payments will often require a sustained tightening of the fiscal Instability tends to reduce confidence and lead to lower investment, lower spending, lower growth and higher unemployment. has to be answered on a case-by-case basis. Easterly, William, and Sergio Rebelo, 1993, Fiscal Policy and Economic to enhance policy credibility. to improve macroeconomic performance; and (3) policies to protect the 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. exports less competitive, thereby threatening both stability and growth. all but the lowest levels of inflation. the scope for reallocating existing government spending into priority of reform measures should be designed to minimize the hardships brought however, some fiscal adjustment is typically also necessary because either For example, changes in the money supply may affect output and Mainstream economists contend that monetary policy tends to be destabilizing, in contrast to monetarists who believe that monetary policy is a stabilizing factor. poverty reduction. Paxson (2000). have confidence as it begins new spending programs that these activities is generally not an effective means to reduce poverty because the poor of their poverty reduction strategies.24 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. relaxed without jeopardizing macroeconomic stability or private sector Behrman, Jere, Suzanne Duryea, and Miguel Szeleky, 1999, Schooling Timmer, C. Peter, 1997, How Well Do the Poor Connect to the Growth than use the tax system to achieve a drastic income redistribution. spending program, but also of planned nondiscretionary, and discretionary