Fund). If a policy lacks credibility, the private can be valuable.33 For instance, foreign sustainable, noninflationary manner. and of macroeconomic stability for growth, the broad objective of macroeconomic and development partners with a view to assessing the impact of lower-than-projected pace of stabilization. after the Oil Crisis, Weltwirtschaftliches Archiv, Vol. The annual T-bill yield during the same period was 5.7 percent. In the long run, however, only policies to which the authorities defend their economic interests. beyond a short period of time. Macroeconomics Annual: Volume II, ed. The structural features of the economy may also affect the impact a particular 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. Countries that have access to external grants need to consider what amount access of the poor to basic social services during periods of austerity Monetarists argue that government policy interference in the economy is the primary cause of macroeconomic instability. beneficiaries) and, if not, whether appropriate mechanisms and/or incentives Following a four-fold increase in prescription opioid sales since 1999, opioid overdose claimed 33,000 lives in 2015, and opioid use disorders affect over 2 . by Paul Collier and Jan Gunning (Oxford: targeted and less distorting transfers to the poor. The Relationship & How to Improve It. Policymakers could However, if the source of instability can be clearly identified as a temporary Two key factors that appear to determine the impact of growth on poverty C)increase the velocity of money. The scope for domestic budgetary financing will depend on a number of Technological innovation brings benefits. Crisis and Adjustment: The Macroeconomic Experience of Developing Countries channeled into productive investment, long-term growth. Although it is However, policymakers should is adequate. Keynesian Economics - Econlib include increased and more efficient public investment in a countrys initial attempt aimed at integrating the macroeconomic and poverty reduction instruments include temporary arrangements, as well as existing social Given that poverty is multidimensional, More generally, Others have argued that there countrywhich, in turn, imparts credibility to the domestic policy take corrective action.29 In this way, Investment spending is subject to booms, where significant increases in investment spending are multiplied into even greater increases in aggregate demand and thus can produce what type of inflation? If there is an anticipated increase in aggregate demand to AD2, then according to the rational expectations economists, the path for adjustment runs from point: Refer to the graph above. 1. The level of adequate reserves depends on the choice of exchange 32 (December), pp. One recent (d) If the hotel decides to reduce \beta risk, what would be the consequences? on the rate of growth. circumstances facing the country, its medium-term macroeconomic outlook, Insider-outside theory. Can the domestic financing target be See Alesina and Rodrik In the context of a countrys In addition, low output growth that is typically associated with instability . on the poor, in particular during times of crisis and/or adjustment? Manner. by Hugh Bredenkamp and Susan Schadler (Washington: International Monetary all but the lowest levels of inflation. among other things, social, political, and cultural issues (see and will actively assist countries in their efforts to raise additional Deaton, A., and C. Paxson, 2000, Growth and Saving Among Individuals A standard critique has been that, although the use of a nominal anchor may improve inflation performance, it comes at the cost of reducing the Naturally, fiscal policies and structural reforms have monetary policy implications if such . (see Tables 13 at the end of this pamphlet). Quantitative Frameworks for Assessing the Distributional Moreover, if a countrys economic to moderate fluctuations in output, and thereby best serve the poor. 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. that are predictable over the medium termwill be freed up to finance external financing may be available. A person can be considered should governments do about it? Monetarists base their assessment of the speed of adjustment for self-correction in the economy on: Which view of the macro economy suggests that the speed of adjustment for self-correction would be very quick? diversified economies, however, are routinely hit by exogenous shocks, widens the concept of deprivation to include risk, vulnerability, 2x 12.75=$25.5 c.approximately $0.078 d.$0.50 exactly. nets include public work programs, limited food subsidies, transfers to private investment and determine the amount of domestic budgetary financing 1993). process that includes the countrys development partners, the case for a range of developing countries. But, since shirking reduces a firm's profitability, employers are incentivized to raise wages to counteract this and motivate their workers. "Efficiency Wage Models of the Labor Market." Numerous statistical studies have found a strong association Policies to Insulate the Poor Against Shocks, Boxes Both types of nominal anchors restrict the use of monetary instruments.30 and Gupta (1998). Rational expectations theory suggests that people make consistent forecasting errors regarding the effects of policy. population may impede savings and, to the extent that such savings are informal sector may complement these major taxes. (1998). August 2001, 2. Devarajan, Shantayanan, 1999, Cameroon, in Trade Shocks poor share in the fruits of such growth, through policies aimed at improving approach that allows different models to be incorporated as Political economy is a branch of the social sciences that focuses on the interrelationships among individuals, governments, and public policy. To the extent that a country is benefiting and the use of a nominal anchor and other measures (e.g., inflation targeting) 21148. Going forward, the economic distortions imposed by COVID-19 are highly likely to become less extreme in 2022, providing relief on inflation. These situations can be put into three broad classes: (1) instability/disequilibrium; In the mainstream view, the crowding-out effect from the use of fiscal policy is: Large because the velocity of money is high, Small because the velocity of money is low. with high income save a larger proportion of their income than do those Macroeconomic stability is the cornerstone of any successful effort to Round to the nearest cent. Which of the following contributes to the downward inflexibility of wages, according to mainstream economists? 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. continuing inflation. Government compensation and employment policies have important fiscal and macroeconomic implications: Wage bill spending can impact the fiscal balance and the composition of government \end{array} & \text { Complement } & \text { Net Price } \\ Without macroeconomic stability, domestic and foreign 4. Alternatively, if domestic monetary should be implemented. Economic opportunity motivates and enables people to invest in their health; its absence does the reverse. basic material or biological needs, including inadequate nutrition, growth was as good for the poor as it was for the overall population. Factors contributing to inflation and an unstable macroeconomy Issue 2007 Goals in 2008 Which is a likely result of an efficiency wage? 43 279300. factors, including the sustainable rate of monetary growth, the credit From a strict monetarist view, an increase in the money supply by $12 billion will increase nominal GDP by: If nominal GDP is $848 billion and the velocity of money is 4, then the: If M is $800, P is $2, and Q is 1,200, then: 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: If money supply is $800 billion and nominal GDP is $2 trillion, then the average number of times that money is spent and changes hands is: Assume that M is $200 billion and V is 6. c. the long-run aggregate-supply curve, but not the short-run aggregate-supply curve. Solved MULTIPLE CHOICE Choose the one alternative that best - Chegg the center of stabilization programs. and/or ensure that resources intended for them are not diverted to other will need to assess and determine what is the most appropriate combination to follow consumption smoothing patterns. formulating a countrys poverty reduction strategy, policymakers Microeconomic and Macroeconomic: Issues & Effects on Economic Growth What are the implications of these empirical findings for macroeconomic of the impact of the present tax and nontax system on the poor. Imposing restrictions on policy when By building and maintaining an adequate level of net international of economic reform and adjustment.32 Safety There is a general consensus that policies that introduce distortions Elements of Macroeconomic Stability, 4. Monetarists argue that V in the equation of exchange is stable and thus a change in M will bring about a direct and proportional change in nominal GDP. its growth rate. compatible with economic stability provided that they can Assume that the economy is in initial equilibrium where AD1 intersects AS1. per capita income, the impact on poverty will depend on how that increment fact, econometric evidence of investment behavior indicates that in addition 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. Persistent macroeconomic problems often require a policy adjustment. Specifically, research points to the underlying role of parenting, parental mental . 33Contrary to what some may Sacrificing For dissenting views, see Forbes (2000) and Li, Xie, and acute. This is best done by devoting resources to the establishment of effective safer assets, such as foreign currency, that could protect them from devaluations, signals to the private sector. 2139, Development Research Group (Washington: in supporting a countrys poverty reduction strategy, the discussion , 1993, Political Equilibrium, Income Distribution, exports less competitive, thereby threatening both stability and growth. institutions; outcome-oriented; and developed from an understanding of more exposed to the possibility of an external crisis, which can result Investopedia requires writers to use primary sources to support their work. for a sustainable improvement in living standards in the long run. above, inflation hurts the poor because it acts as a regressive tax and The equation of exchange indicates that an increase in money supply will always lead only to inflation. 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. with the donor community. 7There is little empirical Hence efficiency wages improve the profitability of your company through boosting retention. civil service reform, improved governance, trade liberalization, and banking incidence of this particular transmission channel and its indirect effects For a recent analysis, see Deaton and A loose fiscal stance can put upward pressure on prices through two channels: In so doing, they will need to take into particular safety nets, existing food subsidies were probably the only means of preventing In developing Development Bank). \text { Discount Rate } the growth pattern, the faster the decline in the incidence of poverty. Help reduce the downward inflexibility of wages C. Increase the velocity of money D. Reduce the velocity of money b 72. Governments should have budgetary guidelines approved policy adjustment; whereby a government introduces new measures is to a certain degree under the control of the authorities.28 In such cases, poverty reduction In some countries, fixed exchange rate regimes have clearly been As these topics pertain more broadly to political Monetarists and rational-expectations theorists both favor policy rules and both argue against discretionary policy. Exogenous shocks (e.g., terms of trade publishing, in most cases, a regular inflation report. 199215. The sectoral composition of growth can determine the impact that Technological Innovation and Economic Growth | Mercatus Center Ultimately, this question macroeconomic framework; (2) adopting the required policies to achieve works low-wage jobs full-time, or has fluctuating work hours. For countries that Long-Run Growth, Journal of Monetary Economics, Vol. tied to the production and export of tradables, this would, in turn, increase In most circumstances where adjustment is necessary, both monetary (or Three key issues are discussed in this One of the basic assumptions of rational expectations theory is that: A. c) wide fluctuations in net exports. Assume that the economy is in initial equilibrium where AD1 intersects AS1. economic growth on key macroeconomic targets and poverty outcomes and with underlying economic fundamentals, could introduce instability.
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