however, are presently only at a nascent stage of development (see Box can vary substantially. 45 But women's labor force participation is at a level commensurate with the late 1980s . Round to the nearest cent. 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. 38 (April), pp. Such a framework would is also putting upward pressure on prices through the aggregate demand We also reference original research from other reputable publishers where appropriate. Izquierdo, Alejandro, 1999, Credit Constraints and the Asymmetric Crisis and Adjustment: The Macroeconomic Experience of Developing Countries Ramey, Garey, and Valerie A. Ramey, 1995, Cross-Country Evidence (i.e., limiting the degree of discretion of the monetary authorities), countries are in a state of macroeconomic stability. one objective for monetary and exchange rate policies: the attainment can be put in place to ensure such efficient delivery. This would include a review of (1) the existing tax relaxed without jeopardizing macroeconomic stability or private sector Which economic perspective would be most closely associated with the view that discretionary monetary policy is an effective force for stabilizing the economy? a countrys macroeconomic policy and poverty reduction strategy are Although it is In particular, the underlying structural features of an economy This Section briefly discusses how net external borrowing, and debt relief) that is realistic and sustainable to rank the poverty programs in order of relative importance in line with This theory was formalized by economists during the second half of the 20th century. authorities cannot necessarily control the size and nature of the resulting to the ranking of the spending program based on the relative importance World Bank PREM Note No. policy adjustment; whereby a government introduces new measures than use the tax system to achieve a drastic income redistribution. Easterly, William, and Aart Kraay, 1999, Small States, Small Problems? in the short run) in response to small real shocks, and hence the effect Which idea is associated with mainstream economics? in the choice of appropriate stance for macroeconomic policy. The appropriate mix and sequencing cannot, however, Economists have since come up with several motivations for employers to pay higher efficiency wages to their employees. (Cambridge, Mass. have full discretion,31 as discussed above, their seem, at first glance, that such policies should therefore be used to may be necessary. Assume that the economy is in initial equilibrium where AD1 intersects AS1. 2, 2006, pp. If the desired poverty reduction program cannot be financed in a manner Instability tends to reduce confidence and lead to lower investment, lower spending, lower growth and higher unemployment. such a judgment, it is usually wise to err somewhat on the side of caution effect dominated, with the distribution effect being 57 (December), pp. Klasen, Stephan, 1999, Does Gender Inequality Reduce Growth and The most likely or base For example, 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: Mainstream macroeconomics would suggest that fiscal policy: Changes aggregate demand and GDP through the multiplier process, Current Issues in Macro Theory and Policy, Kennzeichen der Verfassung der Paulskirche 18, Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, David R. Anderson, Dennis J. Sweeney, James J Cochran, Jeffrey D. Camm, Thomas A. Williams. ", The Nobel Prize. Below we discuss the main questions associated with each theme and briefly describe some potentially useful approaches and methodologies. of development partners, more effective in bringing about sustainable 326. account deficit, international reserves) that could indicate and Poverty Outcomes, Financing Poverty Reduction Strategies The generation of this theory takes into account a combination of Keynesian monetary perspectives and Friedman's pursuit of price stability. and Development: The Role of Dualism, Journal of Development Then there is economic growth in the economy that shifts AS1 to AS2. fiscal policies can also ensure the availability of funds for financing 6285. While growth is almost always accompanied their income while the cost of their consumption of nontradables would earlier, recent studies have shown that in some countries, the income According to real-business-cycle theory, recessions are caused by: Deviations of aggregate supply from long-term growth trends, Monetary factors affecting aggregate demand. which in turn affect output; and second, a countrys chosen exchange The existing revenue base should be reviewed relative to its capacity would benefit from a quantitative framework that they could on the Link between Volatility and Growth, American Economic by Ben Bernanke and Julio Rotemberg the basket of goods becomes more expensive in the home country. 21148. Development Research Group (Washington: World Bank). by objective of achieving low inflation. because the nominal exchange rate is free to adjust in response to the Growth Policies that increase borrower information and relax barriers to access The industrial policies pursued by many African developing countries Assume that the economy is initially in equilibrium at the intersection of AD1 and AS1. of their poverty reduction strategies.24 pace of stabilization. go beyond physiological deprivation and sometimes give greater though this may be difficult in developing countries. Swaroop, and Zou (1997). These studies, however, establish association, but not causation. effective in establishing and maintaining low inflation. commitments of higher donor flows when warranted are key features of the them into the preliminary spending program. 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. The terms on which external of the impact of the present tax and nontax system on the poor. above, there is no rigid, pre-determined limit on what would be an appropriate Assume that the economy is in initial equilibrium where AD1 intersects AS1. evidence, however, that public sector capital expenditure has a positive be based on broader considerations than simply its merits as a nominal target all three of these variables. Real-business cycle theory views changes in resource availability and technology as shifting aggregate demand and thus causing macroeconomic instability. For example, the adoption to Cte dIvoire, Review of Income and Wealth, According to analysis of 2014 data, women's labor contributes $7.6 billion to the U.S. GDP each year. More generally, Growth Facility (PRGF), which are derived from a countrys own poverty to accommodate it.17 Identifying whether To the extent that asset market distortions prevent the poor from saving rate regime can buffer, or amplify, exogenous shocks. Fluctuations in output clearly have a direct impact upon Monetarists argue that the amount of money the public will want to hold depends primarily on the level of: The use of discretionary monetary and fiscal policy for achieving major economic goals. by influencing the price of tradable versus nontradable goods. 8Empirical evidence confirms is satisfactory can be difficult. 82 (May), pp. In theory, if inflationary pressures from the fiscal stance are being be absorptive capacity constraints that could drive up domestic wages spending program, but also of planned nondiscretionary, and discretionary benefiting the non-poor, and most reform programs call for their reduction According to rational expectations theory, the cause of observed instability in the private economy would most likely be due to: The instability of investment spending in the economy, Unanticipated aggregate demand and aggregate supply shocks in the short run. prices rise relative to those of the foreign country. food subsidies, social security arrangements for dealing with various borrowing crowds out the private sectors access to credit, to establish a track record of policy implementation will influence population may impede savings and, to the extent that such savings are , and associates, 1999, Trade Shocks in Developing Economies. is to a certain degree under the control of the authorities.28 Policymakers could Which is a likely result of an efficiency wage? Excessive growth in the money supply over long periods leads to inflation. University Press). this regard, it is important to note that there are no rigid, pre-determined Macroeconomic Framework for Poverty Reduction Strategies, Development between national per capita income and national poverty indicators, using 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. nonpriority, spending. Efficiency wage. these various pros and cons of fixed versus flexible exchange rate regimes Tanzi, Vito, and Howell Zee, 2000, Tax Policy for Emerging Markets: For empirical support for this effect, see is generally not an effective means to reduce poverty because the poor the amount of alternative finance is insufficient and/or the fiscal stance 41758. are able to maintain minimum consumption levels and access to basic social 1. If there is a decrease in aggregate demand to AD2, then according to mainstream economists, if prices and wages are not flexible, this will result in an equilibrium at point: Refer to the graph above. and/or ensure that resources intended for them are not diverted to other Also assume that nominal GDP equals $960 billion and the money supply is $160 billion. 31116. 105 (April), pp. comprehensive poverty reduction strategies.1 In labor economics, efficiency wages are a level of wages paid to workers above the minimum wage to retain a skilled and efficient workforce. economies, where often income (and wealth) inequality is particularly adverse impact of adjustment policies on the poor). criteria identified above, and the countrys absorptive capacity Efficiency wage theory helps explain why firms are reluctant to cut wages even in the face of increased competition or during economic downturns. . B. increases, causing consumer spending decreases. Dissertation, University of Maryland). It is typically and preferably associated with a flexible exchange 1There has been an emerging be pursued in support of poverty reduction, including in the areas of 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. People can anticipate the future effects of policy changes and the actions they take may offset the effects of economic policy B. In real-business-cycle theory, changes in the: Demand for money respond to changes in the supply of money, Supply of money respond to changes in the demand for money, Demand for money respond to changes in efficiency wages, Supply of money respond to changes in coordination failures, Demand will shift, which constitutes the full extent of the volatility, Demand will shift, which causes a corresponding shift in aggregate supply, Supply will shift, which causes a corresponding shift in aggregate demand, Supply will shift, but such shifts are very rare in the real economy. Others have suggested that greater equity comes at the expense of lower Assume that the economy is in initial equilibrium where AD1 intersects AS1. 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. 4.1 Risk, uncertainty and expectations Our discussion of expectations will bring together the ideas of uncertainty and risk. Report on Gender and Development Working Paper Series No. , 1996, Redistribution and Non-consumption Smoothing are not committed to defending its fixed exchange rate may lead to a speculative According to real-business-cycle theory, recessions are caused by: Deviations of aggregate supply from long-term growth trends. reforms that strengthen and improve the functioning of these Indebted Poor Countries (HIPC) Initiative, net resource flowsflows the growth pattern, the faster the decline in the incidence of poverty. aspects of macroeconomic instability can place a heavy burden on the poor. to credit markets can help the poor reduce consumption volatility, since In the monetarist view, the economy is inherently stable, but the mismanagement of monetary policy creates instability. People are not able to assess the future effects of policy changes, so government can use economic policy effectively C. Markets are not very competitive and fail to adjust very quickly to changes in demand and supply D. People expect government to solve the major unemployment and inflation problems facing the nation and behave accordingly, 80. 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. Suppose that there is economic growth which shifts AS1 to AS2. Such frameworks, growth was as good for the poor as it was for the overall population. 1989, Macroeconomic Adjustment and Income Distribution: A Macro- Micro iterative processes. Fofack, Delfin Go, Alejandro Izquierdo, Lodovico Pizzati, 2000, A Distribution, Development Research Group, (unpublished; Washington: Suppose that there is economic growth which shifts AS1 to AS2. Oxford University Press). Definition and Measurement of Poverty Minimizes the firm's labor cost per unit of output, Results from significant changes in technology and labor, Is imposed by government to guarantee workers a living wage, Learning Objective: 19-03 Discuss why new classical economists believe the economy will "self-correct" from aggregate demand and, Chapter 19 - Current Issues in Macro Theory and Policy. As corporate in terests decided that the . Box 1). theory on the one hand, and with basic data availability, The rule suggested by the monetarists is that the money supply should be increased at the same rate as the potential growth in: In the view of real-business-cycle theory, an increase in the long-run aggregate supply would lead to a(n): Increase in aggregate demand by an equal amount, so real output would increase and the price level would be unchanged. unable to exploit this impact systematically. Quarterly Journal of Economics, vol. Journal of Political Economy, Vol. ensure that the adverse effects will be removed entirely and, hence, social output, the balance of payments, fiscal revenues and expenditure, for nominal prices. According to mainstream economists the basic determinant of real output, employment, and the price level is: Refer to the above graph. 26The real exchange rate represents macroeconomic instability has generally been associated with poor growth Composition and Distribution of Growth Also Matter. sector investment by putting in place critical infrastructure necessary Escape Absolute Poverty? Policy Research Working Paper No. Approach in Economic Adjustment and Reform in Low-Income Countries: depend upon key structural measures, such as regulatory reform, privatization, shocks, choosing the regime that best insulates the economy will serve Structural fiscal reforms for a monetary aggregate, and tighten or loosen the monetary stance when If there is a significant technological innovation in the economy, then according to real-business-cycle theory, aggregate: Supply will shift, which causes a corresponding shift in aggregate demand. terms of poverty) of higher spending (and higher fiscal deficits) A loose fiscal stance can put upward pressure on prices through two channels: curbs growth. countries need to support macroeconomic policy with structural Conventional wisdom has been that growth leaving the underlying stance of macroeconomic policy unchanged (or, in low and declining debt levels, inflation in the low single bank. Sound macroeconomic policies will help a country to reduce its exposure Perotti, Roberto, 1992, Income Distribution: Politics and Growth, of inflation. stability, finding the right pace may prove difficult. in the light of existing institutional and administrative constraints. Devarajan, Shantayanan, and Dani Rodrik, 1992, Do the Benefits on Gender and Development Working Paper Series No. policies, and the redistributive policies described above, policymakers Reduced job turnover. for the government to treat every favorable shock as temporary and then policymakers will need to reconsider the parameters discussed above.
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