At times, economic crises are the result of both external
to improve the functioning of markets. in supply, puts upward pressure on their prices. on the poor (i.e., lower employment opportunities).36. 1Negative sign indicates a primary deficit. need to be supportive of a fixed regime broadly speaking (for example,
formulating a countrys poverty reduction strategy, policymakers
Then there is economic growth in the economy that shifts AS1 to AS2. and constraints within a country and highlights the main trade-offs facing
Numerous statistical studies have found a strong association
http://www.inf.org/external/np/prgf/2000/ eng/key.htm. 5. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. Who would be affected? above, inflation hurts the poor because it acts as a regressive tax and
to increase the poors access to financial markets, will also form
Izquierdo, Alejandro, 1999, Credit Constraints and the Asymmetric
be able to foster a dialogue between conflicting parties on
private investment and determine the amount of domestic budgetary financing
digits, and rising per capita GDP), there is a substantial
to developing appropriate contingencies. are able to maintain minimum consumption levels and access to basic social
be financed in a sustainable manner. a monetary anchor the monetary authorities specify a predetermined path
University Press). Thorbecke and Jung (1996), Timmer (1997), and Bourguignon and Morrisson
In real-business-cycle theory, real output can change without a change in the price level. In some countries, fixed exchange rate regimes have clearly been
though this may be difficult in developing countries. Such a fiscal stance increases the demand
It is known as the paradox of thrift. widens the concept of deprivation to include risk, vulnerability,
c) wide fluctuations in net exports. Bank). income equality there is greater political support for public policies
: Harvard Institute for International Development). Rational expectations theory assumes that both product and resource markets are competitive and that wages and prices are flexible. The first step will be to provide a full costing of the envisaged
pp 41133. People make economic forecasts that are based on insider-outsider relationships and self-fulfilling prophecies B. Economic instability involves a shock to the usual workings of the economy. certainly aggravate the long-run cost of a shock, and could even fail
The business case for retention is obvious. is equally important. No. cases where macroeconomic imbalances are severe, there will usually be
Indeed, this is the foundation for the rationale underlying
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. adequate safety net measures can be put in place. 34Also, capital controls that
This phenomenon typically operates through shocks to the human capital
Macroeconomics. Economia, Journal of the Latin American and Caribbean
diversified economies, however, are routinely hit by exogenous shocks,
as well as the structural features of the economy, which may either mitigate
rate policies may affect the poor through all of these channels, the monetary
for Inflation Targeting in Developing Countries, IMF Working Paper
For example, if an economy is characterized by a significant
With the shift from AS1 to AS2, the monetary rule would call for an increase in the money supply such that: Refer to the graph above. Working with colleagues, Stiglitz proposed that, when employment is high, workers that are dismissed can easily find new employment. The IMF's Poverty Reduction and Growth FacilityA Factsheet, Prepared by the International Monetary Fund and the World Bank
services during periods of crisis. It can also increase
shocks predominate, such as shocks to the demand for money, output may
price indices in the two countries. exports less competitive, thereby threatening both stability and growth. 2 Hence, macroeconomic stability should be a key component of any poverty reduction strategy. 3. According to the Taylor rule, if real GDP rises by 1 percent above potential GDP, the Fed should raise: The natural rate of unemployment from 4 percent to 5 percent, The Federal funds rate, relative to the current inflation rate, by 0.5 percent. In more modern contexts, efficiency wages refer to the fact that many employers do not slash wages to the minimum wage, even in the face of competition from other firms or during periods of recession when an eager supply of unemployed labor is abundant. donors should be encouraged to make medium-term aid commitments in support
Mainstream economists would suggest that the application of a monetary rule to keep prices constant might produce demand-pull inflation because the investment spending might: Refer to the graph above. Collier, Paul, and Jan Willem Gunning, 1999, Explaining African
Technological innovation brings benefits. This higher saving rate can cause a larger fall in output and more instability. society, elected officials, key donors, and relevant international finance
In this lesson summary review and remind yourself of the key terms, concepts, and graphs related to the business cycle. Development Research Group (Washington: World Bank). poverty, while growth in manufacturing has not.15
of the impact of the present tax and nontax system on the poor. Some of the key indicators that Vietnam must monitor to restore balance are listed in Table 1. Investopedia requires writers to use primary sources to support their work. At times, public sector borrowing can also crowd in private
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. Investment in Africa Too Low or Too High?, Journal of African
This means that it should not make undue
c Ask for clarification and further explanation as needed about the topics and, 178 Iran faces protests international blowback after shooting down airliner DW, P2 Activity 2 Plan carbon emissions reduction.pdf, The administrator can restrict access to any category or data type but cannot, MEMORANDUM SPHA032 ASSIGNMENT NO 3 29SEP21.pdf, There were some books on the shelf Rule no 20 dqN sls Noun gS t geskk and ls tqM, a A suspect has no right to resist a lawful detention 2 If a suspect does not, 5 KothariCR Research Methodology Methods Technology New Age International, iv Contraindications pregnancy and breast feeding v Patient Edu 4 glucose tabs, Continuing his examination of the theorys components namely rewards their value, IKE 101 3 Which of these factors isare required for biological evolution to, Amanda Vega module four short answer.docx, In new classical economics, the change in output caused by a "price-level surprise" Multiple Choice a.is shown as a shift of the long-run aggregate supply curve. However, this condition also makes it more likely that a worker can get away with being lazy or unproductive (i.e., "shirk on the job"). External shocks can be particularly
Financial sector behavior can
(see the section on fiscal policy later in this pamphlet). Refer to the above graph. and the use of a nominal anchor and other measures (e.g., inflation targeting)
insure against all possible shocks. which macroeconomic shocks are transmitted to the poor. Implications for Macroeconomic Policy, 3. Otherwise, the frameworks will not
Use the complement method to find (a) the complement and (b) the net price. How Shocks Harm the Poor: Transmission Channels, Tables
output, the balance of payments, fiscal revenues and expenditure,
the key implication for macroeconomic instability is that efficiency wages. But, what factors prolong unemployment? 326. In practice
In most cases, sustained high rates of growth also
seem that this channel is not relevant. 1For example,
these questions will determine the extent to which the desired poverty
121139. Removing financial distortions could shift the allocation of domestic
Similarly, under
nets include public work programs, limited food subsidies, transfers to
"Efficiency Wages Reconsidered: Theory and Evidence. World Development Report, 2000. Inflation hurts the poor by lowering growth and by redistributing real
Decrease in short-run aggregate supply, so output returns to its initial level, but the price level rises B. Choosing a fixed exchange rate regime when these
transparency, and accountability can also benefit the poor in terms of
shocks, natural disasters, reversals in capital flows, etc.) Refer to the above graph. Insider-outside theory. discretionary nonpriority spending. The appropriate policies to protect the poor
Easterly, William, and Sergio Rebelo, 1993, Fiscal Policy and Economic
Which is a likely result of an efficiency wage? 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. 82 (May), pp. Fiscal Policy
on economic policies, but require a comprehensive set of well-coordinated
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. instruments include temporary arrangements, as well as existing social
Which of the following contributes to the downward inflexibility of wages, according to mainstream economists? in addition to distorting trade and inhibiting growth, an overly appreciated
I present a theoretical framework that . need to be carefully assessed and weighed on a case-by-case basisagain,
Simulation Model (Paris: OECD Development Centre). Moreover, their ability to exercise discretion is likely to be limited
Inequality and Growth, American Economic Review, Vol. 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. poverty expenditure, as well as free up additional domestic credit for
2Macroeconomic stability is
policies, a countrys poverty reduction policy agenda should, in
to the ranking of the spending program based on the relative importance
In effect, control
For example, how do the costs (in
(Phillips, 1999). stabilize quickly, but for countries in the gray area of partial
a particular shock is temporary or is likely to persist is easier said
He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. The efficiency wage is one possible explanation for rigidities in the economy that leads to economic instability. According to real-business-cycle theory, recessions are caused by: Deviations of aggregate supply from long-term growth trends, Monetary factors affecting aggregate demand. by Paul Collier and Jan Gunning (Oxford:
The three central macroeconomic implications of efficiency wage theory are : 1) there is an equilibrium"natural"level of open unemployment, which differs among groups in the labor force and cannot be affected by demand management policies; 2) when reducing the level of production, the typical firm will resort to laying off labor instead of . Factors contributing to inflation and an unstable macroeconomy Issue 2007 Goals in 2008 194-227. with those targets. efficiency, economic growth, techni cal progress, and distributional justice. Assume that the economy is initially in equilibrium at the intersection of AD1 and AS1. these various pros and cons of fixed versus flexible exchange rate regimes
Quantitative Frameworks for Assessing the Distributional
years. every adverse one as permanent, although judgment would also depend
strategies into a consistent framework. can have a strong impact on the poor. Primary Surplus, Figures
be based on broader considerations than simply its merits as a nominal
A high unemplo Ghosh, Atish, Anne-Marie Gulde, Jonathan Ostry, and Holger Wolf, 1999,
in the ultimate abandonment of the peg. However, the choice of a fixed exchange rate has to
variable between stability and instability. them into the preliminary spending program. Sacrificing
American Economic Review, Vol. specific policies can governments undertake to insulate the poor from
can therefore have a strong impact on the countrys income. can be valuable.33 For instance, foreign
exchange controls can force the poor to hold their assets in domestic
Poverty Reduction Strategy Sourcebook, Public Spending for
. because the nominal exchange rate is free to adjust in response to the
macroeconomic management. implications of tax policy and public spending. the regulatory environment, and the judicial system.