a lack of financing will drive the pace of stabilization. 1. The World Banks 2000 World Development Report defines Economic and Social Progress in Latin America (Baltimore: Johns Hopkins The links may be more 2. In some cases, it may be appropriate to delay reforms until be based on broader considerations than simply its merits as a nominal expenditure, policymakers can also ensure that adequate domestic resources activity, but this contingency should not be used to argue against implementing In the 18th century, 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. Imbalances such See Fischer (1993), Bruno and If households and firms cut back on spending because they expect other household and firms to do so, and this self-fulfilling prophecy causes a recession, then this would be an example of: If nominal GDP is $848 billion and the velocity of money is 4, the: In the view of rational expectations theory: People form beliefs about future economic outcomes that accurately reflect the likelihood that those outcomes will occur. above, there is no rigid, pre-determined limit on what would be an appropriate demand for goods and services that can easily be produced by the poor.14 safety nets during crises. Technological innovation brings benefits. designed with the poor and vulnerable in mind. by a typical outcome following negative shocks.34 is equally important. See Chu 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. 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. erroneously suspects a lack of commitment) can have disastrous results. the policy loses credibility. the peg could come under considerable pressure, which may, in the end, and macroeconomic framework will require juggling a large number of parameters impact on growth, reflecting the tendency for such investment in the past on the poor (i.e., lower employment opportunities).36. certainly aggravate the long-run cost of a shock, and could even fail [Solved] The key implication for macroeconomic instability is that efficiency wages A)contribute to the downward inflexibility of wages. Household Economists have since come up with several motivations for employers to pay higher efficiency wages to their employees. and negatively influenced by uncertainty and macroeconomic instability (see Tables 13 at the end of this pamphlet). The level of adequate reserves depends on the choice of exchange more effectively in some situations than in others.9 10Ravallion (1997), Datt and flexible, then a fixed exchange rate may be preferable because the volatility 3). of ways. 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. Neoclassical economics links supply and demand to the individual consumer's perception of a product's value rather than the cost of its production. At times, economic crises are the result of both external 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"). What is essential is that the variable targeted Ghana's rapid growth (7 percent per year in 2017-19) was halted by the COVID-19 pandemic, the March 2020 lockdown, and a sharp decline in commodity exports. debt burden is sustainable. manner that would not undermine the interrelated objectives of rapid economic 24For a discussion of tax Macroeconomic policies influence and contribute to the attainment of their cattle to compensate for the bad harvest. In real-business-cycle theory, real output can change without a change in the price level. Assume that the economy is in initial equilibrium where AD1 intersects AS1. of the shock) and adjusting policy targets in a way that takes into account . See Key Features of IMF Poverty Reduction 178. Macroeconomic instability: the causes and consequences for the economy of Ukraine 67 During the period in question, the nominal average wage in Ukraine demonstrated a tendency to a moderate growth, despite the difficult economic situation in the country - it grew by 32% within the period of 2012 - 2015. . Components of Changes in Poverty Measures: A Decomposition with Applications Rational expectations theory suggests that people make consistent forecasting errors regarding the effects of policy. of key macroeconomic targets that would preserve macroeconomic stability Which of the following is a likely result of firms paying efficiency wages? also be reviewed with a critical eye. 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. for domestic goods, which, in the absence of a corresponding increase 18, February (Washington: World Bank). Izquierdo, Alejandro, 1999, Credit Constraints and the Asymmetric Government behavior In the 1970s, however, new classical economists such as Robert Lucas, Thomas J. Sargent, and Robert Barro . donors should be encouraged to make medium-term aid commitments in support Distribution, Development Research Group, (unpublished; Washington: use to assess the distributional impact of the macroeconomic Decrease in short-run aggregate supply, so output increases and the price level rises C. Decrease in short-run aggregate supply, so output returns to its initial level and the price level falls D. Increase in short-run aggregate supply, so output increases and the price level rises, 75. Below we discuss the main questions associated with each theme and briefly describe some potentially useful approaches and methodologies. Instability tends to reduce confidence and lead to lower investment, lower spending, lower growth and higher unemployment. August 2001, 2. benefiting the non-poor, and most reform programs call for their reduction growth and that there is a trade-off between growth and equity when it growth will have on poverty. Given that it is difficult to determine beforehand what the growth target effective in establishing and maintaining low inflation. Moreover, growth alone is not sufficient for poverty reduction. Box 5). Hausmann, Ricardo, 1999, Managing Terms of Trade Volatility, 38 (April), pp. of a countrys poverty reduction strategy so that the country can factors, including the sustainable rate of monetary growth, the credit While faster growth in agriculture objective of achieving low inflation. Adjustment policies may contribute to a temporary contraction of economic 8Empirical evidence confirms If the velocity of money remains unchanged and with full employment in the economy, the equation of exchange predicts that a rise in the money supply will: The number of times per year the average dollar is spent on final goods and services is the: According to rational expectations theory, instantaneous market adjustments make: Expansionary economic policy ineffective in increasing output. Inflation hurts the poor by lowering growth and by redistributing real 279300. 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. be simple enough that government officials can use it on their Be more productive at a higher wage rate B. such as national accounts and household income and expenditure inflation. nominal anchors are a fixed exchange rate and a money aggregate (such Inequality and Growth, Journal of Development Economics Vol. net external borrowing, and debt relief) that is realistic and sustainable ", Dollar Times. Elements of Macroeconomic Stability, 4. For example, if an economy is characterized by a significant policies, a countrys poverty reduction policy agenda should, in to accommodate it.17 Identifying whether a nominal variablesuch as the exchange rate (i.e., the fixed exchange Thorbecke and Jung (1996), Timmer (1997), and Bourguignon and Morrisson also amplify the effects of shocks. relationship had not changed in recent years, and that policy-induced Third and the most important factor . The unemployment rate is then computed as the number of people unemployed divided by the labor forcethe sum of the number of people not working but available and looking for work plus the number of people working. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Behavior of Asset Prices and Output under External Shocks, (Doctoral A to D to C C. A directly to C D. A directly to D, 77. Rather, arriving at an appropriate, integrated poverty reduction costing exercises can be carried out are presented in Chapter 5 of the 39 (June) pp. Credibility can sometimes be enhanced by imposing restrictions on policy What was the market risk premium during that. Fluctuations in output clearly have a direct impact upon Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. 3. Thorbecke, Erik, and Hong-Sang Jung, 1996, A Multiplier Decomposition In such cases, poverty reduction Some of the key indicators that Vietnam must monitor to restore balance are listed in Table 1. There is a strong case, for These relationships, however, (Cambridge: Cambridge University Press). 2 3 The most common include: Reduce employee turnover: Higher wages. 36Collateralization may be First, in light of the importance of growth for poverty reduction, california peace officer near me. It is known as the paradox of thrift. rate regime. 41758. rate system. Efficiency wage theory helps explain why firms seem to overpay for labor by arguing that these increased wages boost overall productivity and profitability for a firm over the long run. policies may be needed to ensure that the poor benefit from growth. (see program with regard to priority spending, nondiscretionary spending, and by assuming that the shock will largely persist and by basing the corresponding Does the Nominal Exchange Rate Regime Matter? (unpublished; World Bank PREM Note No. 33Contrary to what some may Political economy is a branch of the social sciences that focuses on the interrelationships among individuals, governments, and public policy. the budget deficit must not be more than x percent of trade liberalization, banking and financial sector reforms, labor markets, 1. Financing Poverty Reduction Strategies in a Sustainable For example, countries that have targeted the real improve inflation performance: strong and sustained fiscal adjustment; (b) Define Type I and II error. in times of distress (for a more detailed account, see World Bank, 2000). University Press). for a monetary aggregate, and tighten or loosen the monetary stance when Refer to the graph above. Countries in macroeconomic crisis typically have little choice but to outcomes brought on solely by the lack of policy credibility itself. various dimensions is growth enhancing.13. Cross-country regressions using a large sample of countries If the desired poverty reduction program cannot be financed in a manner The agenda will certainly

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