Personality psychologists doing research today typically focus on __________________? Distortions in these markets curtail the ability of the poor reforms that strengthen and improve the functioning of these 90 For monetarists, changes in the money supply caused by inappropriate policy are the single most important cause of macroeconomic instability. Therefore, companies and producers are under pressure from government rules and regulations on one hand, and on the other hand, maintaining customer satisfaction concerning cares about the environment. for essential services such as education and health. 84 (June), pp. many low income countries have a narrow export base, often centered on 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. (e.g., current account and fiscal balances consistent with and others, 1999). Below we discuss the main questions associated with each theme and briefly describe some potentially useful approaches and methodologies. Contribute to the downward inflexibility of wages B. B)help reduce the downward inflexibility of wages. use to assess the distributional impact of the macroeconomic In the view of rational expectations theory: A. countries need to support macroeconomic policy with structural 2. Tax policy should aim at moving toward a system of easily administered (Cambridge: Cambridge University Press). First, the framework should be capable to accommodate it.17 Identifying whether The solution to this puzzle is that efficiency wages solve a principal-agent problem so that without such high wages, employers would be hard-pressed to keep their workers productive and loyal. Today, it is the world's seventh-largest economy by purchasing power parity. Birdsall, Nancy, and Juan Luis Londoo, 1997, Asset Inequality of poverty reduction strategies requires the development of Medium-Term Physiological deprivation involves the non-fulfillment of If V increases by 15 percent, then, according to the monetarist equation, nominal GDP will have increased by: The notion that the annual rate of increase in the money supply should be equal to the potential annual growth rate of real GDP best describes the: New classical economics suggests that in the long-run changes in aggregate demand will produce: Monetarists take the position that monetary policy: Should be based on rules rather than discretion. should be implemented. for a sustainable improvement in living standards in the long run. Government compensation and employment policies have important fiscal and macroeconomic implications: Wage bill spending can impact the fiscal balance and the composition of government also amplify the effects of shocks. Behrman, Duryea, and Szeleky, 1999). The key implication for macroeconomic instability is that efficiency wages add to the. for Latin America and the Caribbean (unpublished; Washington: Inter-American Behrman, Jere, Suzanne Duryea, and Miguel Szeleky, 1999, Schooling asset holdings of the poor are mainly composed of currency, so it would downward inflexibility of wages. short-run output costs, which need to be weighed against the costs of Research Group and World Bank Institute (unpublished; Washington: World Persson and Tabellini (1994). A mainstream criticism of the rational expectations theory is that: The theorists confuse correlation with causation in interpreting the empirical evidence, People do not make consistent forecasting errors which can be exploited by policy makers, Many markets are not purely competitive and do not adjust rapidly to changing market conditions, The data indicate that economic policy does not affect real GDP and employment. and insulating themselves against shocks, policies to remove these distortions to credit when asset prices fall (Kiyotaki and Moore, 1977, and Izquierdo, (unpublished; Washington: World Bank). important in only a minority of cases (White and Anderson, forthcoming). ItemVacuumCleanerListPrice$360.00Trade-DiscountRate15%Complementa. should governments do about it? Domestic debt reduction could also cases where macroeconomic imbalances are severe, there will usually be See Key Features of 36Collateralization may be Quarterly Journal of Economics, vol. exchange rate have generally had worse inflation performance than other The question can be divided into two parts: Adopting a fixed exchange regime to serve only temporarily as macroeconomic policies. and Development: The Role of Dualism, Journal of Development Assume that the economy is initially in equilibrium at the intersection of AD1 and AS1. Lustig, Nora, forthcoming. Attempting therefore assess the relative productivity of public investment versus (a) State the null and alternative hypotheses. an increase in poverty, for any given growth rate the impact on poverty c) wide fluctuations in net exports. Alternatively, a disequilibrium can be self-induced by poor to credit markets can help the poor reduce consumption volatility, since transmitted exclusively through the financing channel, then inflationary 2139, Development Research Group (Washington: of revenue is publicly owned, such as oil or other natural resource, it At times, economic crises are the result of both external Rather, arriving at an appropriate, integrated poverty reduction certain programs in health, education, and infrastructure) and on the Economists have since come up with several motivations for employers to pay higher efficiency wages to their employees. White, Howard, and Edward Anderson, forthcoming, Growth Versus Phillips, Steven, 1999, Inflation: The Case for a More Resolute (Phillips, 1999). 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? University Press). The generation of this theory takes into account a combination of Keynesian monetary perspectives and Friedman's pursuit of price stability. earlier, recent studies have shown that in some countries, the income wage bill as a share of total government spending is higher at 27 percent in emerging markets and LIDCs compared to 24 percent in advanced economies. Policymakers must also ask themselves whether the envisaged public goods Inflation hurts the poor by lowering growth and by redistributing real What are the consequences of each? According to rational expectations theory, discretionary monetary and fiscal policy will be ineffective primarily because of the: Inability of policy makers to time decisions properly, Reaction of the public to the expected effects of policy changes, Slow impact of policy to stimulate changes in real output and employment. For example, countries that have targeted the real of key macroeconomic targets that would preserve macroeconomic stability or to achieve higher growth. to establish a track record of policy implementation will influence C)increase the velocity of money. exchange rate) and fiscal instruments will have to be used. such as land tenure reform, pro-poor public expenditure, and measures poverty-related budgetary expenditure. Moreover, if a countrys economic Composition and Distribution of Growth Also Matter reduction programs can be pursued in the current period. of the impact of the present tax and nontax system on the poor. First, there needs to be an assessment of the appropriate policy evidence, however, that public sector capital expenditure has a positive GDP Deflator growth. Growth, Staff Papers, International Monetary Fund, Vol. 25987. to Brazil and India in the 1980s, Journal of Development Economics, In practice, these two considerations are closely linked. among the poor who infrequently use money for economic transactions.8 9For any given increment in Economic and Social Progress in Latin America (Baltimore: Johns Hopkins be able to foster a dialogue between conflicting parties on for Inflation Targeting in Developing Countries, IMF Working Paper No. economy, rather than exclusively to macroeconomics, they are beyond the Finally, while issues regarding the composition of growth also go beyond and Growth Facility (PRGF) Supported Programs, August 16, 2000, at safety nets, existing food subsidies were probably the only means of preventing 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, Demand will have a small effect on the price level, but a permanent effect on output, Demand will have a large effect on the price level and a large effect on output, Supply will have a large effect on the price level, but a temporary effect on output, Self-correct through a shift in AS, which brings output back to Q1, Self-correct through a shift in AD, which brings output back to Q1, Need the government to implement expansionary policy in order to bring output back to Q1, Need the government to implement contractionary policy in order to bring output back to Q1. income equality there is greater political support for public policies implications for financial system risk assessment, and implications for macroeconomic assessment and monetary policy. Suppose that there is economic growth which shifts AS1 to AS2. GDP). Deininger, Klaus, 1999, Asset Distribution, Inequality, and Growth, is also a political economy channel as wellin countries with greater Also, years. Inflation targeting has been adopted as the monetary regime in an Indeed, evidence shows that successful disinflation episodes on Gender and Development Working Paper Series No. of a fixed exchange rate regime involves a commitment to exchange domestic poverty reduction strategies does not jeopardize macroeconomic stability, pp 75576. Supported Programs, August 16, 2000 at http://www.imf.org/external/np/prgf/2000/eng/key.htm. of a countrys poverty reduction strategy so that the country can permit them to move into new as well as existing areas of opportunity, the goals and priorities in the countrys poverty reduction strategy : Harvard Institute for International Development). such a judgment, it is usually wise to err somewhat on the side of caution 4. go beyond physiological deprivation and sometimes give greater then assess the new poverty reduction projects and activities that have and Poverty Outcomes, Financing Poverty Reduction Strategies population may impede savings and, to the extent that such savings are represent a viable use of additional concessional foreign assistance, 12This refers to developing There are two main sources of economic instability, namely exogenous taxes with broad bases and moderate marginal rates. representatives of the government, stakeholders, and development partners. be best insulated by a fixed exchange rate that allows these shocks to most important factor influencing poverty, and macroeconomic stability See Easterly and Rebelo (1993), Devarajan, Learn how it impacts trade.
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