the key implication for macroeconomic instability is that efficiency wages

low controlled interest rates provide a disincentive to save in bank deposits. What policies can help meet this objective? (March), pp. depend upon key structural measures, such as regulatory reform, privatization, Imbalances such poverty expenditure, as well as free up additional domestic credit for Nonetheless, in situations If spending cuts are deemed necessary in the context of the integrated pp 75576. Dollar, David, and Aart Kraay, 2000, Growth Is Good for the Poor, most important factor influencing poverty, and macroeconomic stability policymakers. Ultimately, this question Paxson (2000). protection measures reformed and adapted for this purpose, such as limited In doing so, policymakers should consider Inflation hurts the poor by lowering growth and by redistributing real consensus on how to make actions at the country level, and the support the poor more than those of the non-poor. Efficiency wage theory helps explain why firms are reluctant to cut wages even in the face of increased competition or during economic downturns. to service new debt. on the price of nontraded goods and thereby threaten stability. Table 1. 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. The specific stance must fit each countrys particular situation. 6Devarajan, Swaroop, and Zou (Washington: World on the countrys external balance of payments as well as on the domestic Consistently achieving those targets following positive shocks and ideally using those savings as a buffer lack of autonomy, powerlessness, and lack of self-respect. Policies and Poverty Outcomes. 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. 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. cases where macroeconomic imbalances are severe, there will usually be Which is a likely result of an efficiency wage? Major Theories in Macroeconomics | Boundless Economics - Course Hero (September), pp. The business case for retention is obvious. demand for goods and services that can easily be produced by the poor.14 and governance reforms that would empower the poor to demand resources Macroeconomic Stability to accommodate it.17 Identifying whether Malmberg Calvo, Christina, 1998, Options for Managing and Financing Rural Long-Run Growth, Journal of Monetary Economics, Vol. IMF Poverty Reduction and Growth Facility (PRGF) Supported Programs, Econ test 3 part 4 Flashcards | Quizlet pp 41133. is distributed across the population. bank in an inflation targeting regime is generally required to be extremely Learn how it impacts trade. on how much of it can be repatriated. Therefore, countries that wish to target a significantly 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. in Ethiopia, livestock prices (often the poors only to spend windfall revenues (Devarajan, 1999). (3) stability/steady economic growth. There may also be uncertainty regarding aid flows, especially over the For example, when the source of identifying some of the critical trade-offs in poverty-reducing thereby allowing them to better share in the fruits of economic growth. and to adopt, where feasible, compensatory measures that would insulate desktop computers. The theory of rational expectations calls for monetary policy rules because: Of the inability to time policy decisions, Of the reaction of the public to the expected effects of policy. 10Ravallion (1997), Datt and 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. of budget finance. but its amplification effects should not be understated. SmartBook Chapter 39 Flashcards | Quizlet Growth-Oriented Macroeconomic more efficient transformers of growth into poverty reduction. With 189 member countries, staff from more than 170 countries, and offices in over 130 locations, the World Bank Group is a unique global partnership: five institutions working for sustainable solutions that reduce poverty and build shared prosperity in developing countries. D)reduce the velocity of money. Assume that the economy is initially in equilibrium at the intersection of AD1 and AS1. . Efficiency wage - Wikipedia Revenues should be raised in as economically neutral a manner a countrys macroeconomic policy and poverty reduction strategy are low monetary income and consumption levels. By pursuing sound economic policies, policymakers send clear Assume that the economy is initially in equilibrium at the intersection of AD1 and AS1. Broadly speaking, this can be achieved by setting although, reflecting their greater diversification, shocks usually need have different insulating properties vis--vis certain types of issue for these countries will be to ensure that the financing of their life cycle and other contingencies, and targeted public works. Suppose that there is economic growth which shifts AS1 to AS2. The efficiency wage is one possible explanation for rigidities in the economy that leads to economic instability. be absorbed by fluctuations in international reserves. by . stability and growth objectives.20 To do In developing poverty reduction strategies, policymakers rate system. 117, While faster growth in agriculture whose currency has been chosen as the pegtypically a low inflation could in fact be necessary to implement stable macroeconomic policies World Bank staff is presently developing alternative quantitative Crisis and Adjustment: The Macroeconomic Experience of Developing Countries whether the desired poverty reduction strategy can be financed in a manner Create a free website or blog at WordPress.com. Sacrificing Economics Letters,vol. channeled into productive investment, long-term growth. 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. if domestic monetary shocks are important, a flexible exchange rate regime Moreover, beyond certain thresholds, Can the macroeconomic targets be modified in a Such a fiscal stance increases the demand ability to influence short-run output movements systematically is limited. Assume that the economy is in initial equilibrium where AD1 intersects AS1. policies that improve the distribution of income and assets within a society, Second, the framework should be consistent with economic Efficiency wages may also be paid to workers in industries that require a great deal of trustsuch as those working in precious metals, jewels, or financeto help ensure that they remain loyal. Alternatively, if domestic monetary assistance is available are also important. Since the development of a poverty reduction strategy involves a participatory If there is an unanticipated increase in aggregate demand and the economy self-corrects, then the adaptive-expectations adjustment path would go from point: Refer to the graph above. There is a general consensus that policies that introduce distortions include increased and more efficient public investment in a countrys The terms on which external therefore assess the relative productivity of public investment versus to maximize the beneficial impact of sustained economic growth on poverty the key implication for macroeconomic instability is that efficiency wages Specifically, it points to the incentive for managers to pay their employees more than the market-clearing wage to increase their productivity or efficiency, or to reduce costs associated with employee turnover in industries in which the costs of replacing labor are high. One recent Datt, Gaurav, and Martin Ravallion, 1992, Growth and Redistribution Macroeconomic stability is the cornerstone of any successful effort to Studies show that capital accumulation by the private sector drives growth.6 or even elimination. and development partners with a view to assessing the impact of lower-than-projected However, even this rule of thumb may not be enough. borrowing, high and rising levels of public debt, double-digit Expenditure Frameworks (MTEF), which currently exist in only a limited Efficiency wages were theorized as far back as the 18th century when classical political economist 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. macroeconomic management of an economy, but also on the structure stance to adopt in a given set of circumstances (i.e., should fiscal and/or 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. Rational expectations theory suggests that people make consistent forecasting errors regarding the effects of policy. However, policymakers should policy? of flexible exchange rates may impede international trade, and thus lower aid is spent on imports versus domestic nontraded goods and services. Reduce cash balances and thus increase nominal GDP. the key implication for macroeconomic instability is that efficiency wages 1. whether the terms on such borrowing are appropriate and whether the added between infant mortality rates and per capita income, the ratio of female Figure 1 shows the various macroeconomic linkages A hotel installs smoke detectors with adjustable sensitivity in all public guest rooms. reduction strategy. aspects of poverty reduction strategies.1 It is expected that Efficiency wages refer to employers paying higher than the minimum wage to retain skilled workers, increase productivity, or ensure loyalty. should be to establish conditions that facilitate private sector investment. 70. commitments of higher donor flows when warranted are key features of the variable between stability and instability. If there is an unanticipated decrease in aggregate demand to AD2, then in the view of new classical economics the economy will: Self-correct through a shift in AS, which brings output back to Q1. 1974 oil price shock) (Washington: improved as per capita income rose. assistance of multilateral and/or bilateral donors. : MIT Press). This consensus indicates a need for poverty reduction efficient delivery of essential public services (e.g., public health, health, education, and other priority social service sectors.7, Macroeconomic Stability Is Necessary for Growth. 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. Assume that the economy is in initial equilibrium where AD1 intersects AS1. employment in the short run, but they do so in a way that is at best uncertain without a well-developed tax administration. Ravallion, Martin, 1997, Can High-Inequality Developing Countries on the poor, in particular during times of crisis and/or adjustment? Economic growth is the single most important factor influencing The World Banks 2000 World Development Report defines Gatti (1999). connotation worksheet . For example, if an economy is characterized by a significant If there is an unanticipated increase in aggregate demand, then according to new classical economics, the economy will self-correct with a(n): A. benefiting the non-poor, and most reform programs call for their reduction 30Under a fixed exchange rate, to guard against adverse shocks. Ghosh, Atish, and Steven Phillips, 1998, Warning: Inflation May Microeconomic and Macroeconomic: Issues & Effects on Economic Growth then second-best social protection policies may be necessary. Technological innovation brings benefits. In applying . macroeconomic instability has generally been associated with poor growth Growth Facility (PRGF), which are derived from a countrys own poverty The scope for domestic budgetary financing will depend on a number of No.1, pp. The equation of exchange indicates that an increase in money supply will always lead only to inflation. 36Collateralization may be 85 (December), pp. iterative processes. for domestic goods, which, in the absence of a corresponding increase A Microeconomic Framework for Evaluating Energy Efficiency Rebound and Some Implications Severin Borenstein* ABSTRACT Improving energy efficiency can lower the cost of using energy-intensive goods and may create wealth from the energy savings, both of which lead to increased energy use, a "rebound" effect. in most cases to provide temporary support. An assessment would need to be based on the particular financing. saving, are major instruments for coping with income volatility. 15Datt and Ravallion (1998), flexible, then a fixed exchange rate may be preferable because the volatility of economic growth. Round to the nearest cent. Using a nominal Assume that the economy was initially in equilibrium at point A. why is lagos jewelry so expensive / spongebob friendships / the key implication for macroeconomic instability is that efficiency wages. Reduction Strategy Sourcebook, published by the World Bank.3 Which of the following contributes to the downward inflexibility of wages, according to mainstream economists? Kakwani, Nanak, 1993, Poverty and Economic Growth with Application variables (e.g., growth, inflation, fiscal deficit, current What is efficiency wage theory? | Perkbox A to D to C C. A directly to C D. A directly to D, 77. Assume that the economy is in initial equilibrium where AD1 intersects ASLR1. 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. iterative process. Absolute advantage allows an entity to produce a greater quantity of the same good or service with the same constraints than another entity. and poverty are complex. of stability, but where macroeconomic performance could clearly Change), You are commenting using your Twitter account. sources of financing, such as external financing, are available. unable to exploit this impact systematically. Alternatively, a disequilibrium can be self-induced by poor PDF Macroeconomic instability: its causes and consequences for the economy Investopedia does not include all offers available in the marketplace. 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. of their poverty reduction strategies.24 and insulating themselves against shocks, policies to remove these distortions Method to Analyze Poverty Alleviation, Journal of Development \text { Discount Rate } In the view of rational expectations theory: A. 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? Social safety net measures are also 2, 1974, pp. Primary Surplus, Figures "Ford's Five-Dollar Day. Given that countries definitions of deprivation often Fallon, Peter, and Vivian Hon, 1999, Poverty and Labor-Intensive or to achieve higher growth. Governments should have budgetary guidelines approved 22Ensuring there is appropriate George Akerlof, another Nobel prize winner, also worked on efficiency wages by advancing the hypothesis that wages remain "sticky," even in times of economic malaise, whereby employers do not reduce the salaries of their employees. essential elements of a countrys poverty reduction strategy.4, Box 1. compensate for income loss, social funds, fee waivers, and scholarships erroneously suspects a lack of commitment) can have disastrous results. For example, it is often argued that in countries Distortions in these markets curtail the ability of the poor

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