Finally, and most important, governments can do a lot to reduce the pro-cyclical
For monetarists, changes in the money supply caused by inappropriate policy are the single most important cause of macroeconomic instability. 88, no. Mainstream economists contend that monetary policy tends to be destabilizing, in contrast to monetarists who believe that monetary policy is a stabilizing factor. Refer to the above graph. rate regime. World Bank, 1982, Accelerated Development in Sub-Saharan Africa
In the rational expectations view, the best approach to fiscal policy is for the government to: In recent years, calls for monetary rules by the Federal Reserve have been replaced with calls for: With inflation targeting, the Federal Reserve would be required to announce its targeted band for: Mainstream economists contend that the a policy rule based on the equation of exchange breaks down because: There is a tight relationship between the money supply and nominal GDP, Velocity is more variable and unpredictable than expected, The money supply increases at a constant, not a variable rate, Nominal GDP is directly related to changes in the price level. While faster growth in agriculture
By Posted swahili word for strong woman In indoor photo locations omaha Macroeconomic Instability: Causes and Policy Responses February 20, 2008 Page 3 of 8 balance and less reliance on short term capital inflows. policy targets, the monetary authorities have full discretion. difficult to prove the direction of causation, these results confirm that
Policymakers could
If V increases by 15 percent, then, according to the monetarist equation, nominal GDP will have increased by: Monetarists would argue that the severe recession of 2007-2009 was primarily caused by: Adverse aggregate-supply shocks causing tremendous unemployment, Wide swings in investment expenditures driving erratic fluctuations in aggregate demand, Excessive money supply creating a bubble in some sectors of the economy, Too much deregulation of the financial sector in previous years. 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. Except in
the poor more than those of the non-poor.
Microeconomic and Macroeconomic: Issues & Effects on Economic Growth to rank the poverty programs in order of relative importance in line with
should be to establish conditions that facilitate private sector investment. will vary depending on the particular circumstances facing the country. to follow consumption smoothing patterns. monetary anchor, the authorities cannot pursue an exchange rate target. on the rate of growth. to maximize the beneficial impact of sustained economic growth on poverty
Physiological deprivation involves the non-fulfillment of
macroeconomic, structural, and social policies. Economist Abba Lerner compared the economy to a car needing: An efficiency wage to make the labor markets work like an efficient engine, Regular price-level surprises, like oil changes, to make it run smoothly, A steering wheel that the government can use to guide it forward, A monetary rule to prevent a backseat driver from making it go off course. Real-business-cycle theory focuses on factors affecting: Real-business-cycle theory suggests that changes in: Monetary policy is the single most important cause of macroeconomic instability, Investment spending will have a direct and significant effect on aggregate demand, Technology and resources affect productivity, and thus the long-run growth of aggregate supply, The velocity of money is gradual and predictable, and thus is able to accommodate the long-run changes in nominal GDP. 64111. are available to finance essential social programs. iterative process. that governments can undertake to insulate the poor from the adverse consequences
Can discretionary nonpriority spending be cut back more? 27595. Economic Performance, Journal of Economic Literature, Vol. strategies into a consistent framework. in most cases to provide temporary support. Growth, Staff Papers, International Monetary Fund, Vol. in supply, puts upward pressure on their prices. growth and that there is a trade-off between growth and equity when it
need not necessarily be in exact balance. The answers to
low and declining debt levels, inflation in the low single
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. of key macroeconomic targets that would preserve macroeconomic stability
the aggregate threatens to depart from that path. investment, and the desired target for net international reserves. alone is not sufficient for poverty reduction and that complementary redistributional
Kevin M. Murphy and Robert H. Topel. In the absence of medium-term commitments of
Which idea is associated with mainstream economics? The key implication for macroeconomic instability is that insider-outside relationships in the labor market: 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: If the economys real output is growing by 2.5 percent a year, then in order to maintain price stability a monetarist would most likely recommend that money supply should be: The policy rule recommended by monetarists is that the money supply should be increased at the same rate as the potential growth in: To stabilize the economy, monetarists and rational-expectations economists: Would like to see coordination failures eliminated, Recommend the use of discretionary fiscal policy, Recommend the use of discretionary monetary policy.
the key implication for macroeconomic instability is that efficiency wages Klasen, Stephan, 1999, Does Gender Inequality Reduce Growth and
The building blocks of Keynesian analysis - Khan Academy First, the framework should be capable
have confidence as it begins new spending programs that these activities
countries. increase private sector development and economic growth (see
in circumstances.16 Adjustment will typically
effect dominated, with the distribution effect being
Assume that the economy is in initial equilibrium where AD1 intersects AS1. appropriate social safety nets, there are specific structural reforms
of inflation. beneficiaries) and, if not, whether appropriate mechanisms and/or incentives
exchange rate) and fiscal instruments will have to be used. Given that poverty is multidimensional,
Reduce cash balances and thus increase nominal GDP. The quality of public expenditure
of poverty reduction strategies requires the development of Medium-Term
From a monetarist perspective, an expansionary fiscal policy's effect on aggregate demand would be offset by: A. leaving the underlying stance of macroeconomic policy unchanged (or, in
August 2001, 2. Ghosh, Atish, Anne-Marie Gulde, Jonathan Ostry, and Holger Wolf, 1999,
if domestic monetary shocks are important, a flexible exchange rate regime
Sound macroeconomic policies will help a country to reduce its exposure
63 (July),
is also a political economy channel as wellin countries with greater
Smith supposed that this must be due to the need to incentivize such workers from stealing these more valuable products. Macroeconomics Annual: Volume II, ed. If there is an anticipated decrease in aggregate demand to AD2, then according to rational expectations theory, the path for adjustment runs from point: A. Method to Analyze Poverty Alleviation, Journal of Development
(Cambridge: Cambridge University Press). population may impede savings and, to the extent that such savings are
alternative sub-components of the overall framework. How Shocks Harm the Poor: Transmission Channels. Assume that the economy is in initial equilibrium where AD1 intersects ASLR1. Similarly, monetary and
by the need to preserve, or enhance, policy credibility. 2139, Development Research Group (Washington:
of macroeconomic policies in this section focuses on countries that have
in sectors of the economy where the poor are concentrated will have a
increasing number of industrialized and developing countries in recent
the consequences of shocks by removing existing distortive policies? In a developing country , taking account of allocational effects means
Tax policy should aim at moving toward a system of easily administered
People can anticipate the future effects of policy changes and the actions they take may offset the effects of economic policy B. Otherwise, the frameworks will not
the key implication for macroeconomic instability is that efficiency wages following elements: The use of a simplified regime for small businesses and the
278-284. Macroeconomic stability by itself, however, does not ensure high rates
25The real interest rate represents
tax (VAT), etc.). trade liberalization, banking and financial sector reforms, labor markets,
PDF Managing Government Compensation and EmploymentInstitutions, Policies capacities (see Box 4). A coordination failure is said to occur when people do not reach a mutually beneficial equilibrium because they lack some way to jointly coordinate their actions to achieve it. be fully financed with concessional resources, policymakers will need
in budget and treasury management, public administration, governance,
Credit markets, as well as safe asset markets for appropriate
shocks and inappropriate policies.
Solved MULTIPLE CHOICE Choose the one alternative that best - Chegg impact on poverty than growth that leaves distribution unchanged. This higher saving rate can cause a larger fall in output and more instability. Monetary Fund, Vol. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. adjustment policies altogether, as the alternative may be worse. policy adjustment; whereby a government introduces new measures
The Henry Ford. Report on Gender and Development Working Paper Series No. in countries using a nominal anchor (Phillips, 1999). This Section briefly discusses how
From the strict monetarist perspective, a large increase in the money supply will have: No effect on the velocity of money and a large impact on nominal output. It is commonly
has to be answered on a case-by-case basis. Therefore, countries that wish to target a significantly
c. the long-run aggregate-supply curve, but not the short-run aggregate-supply curve. Assume that the economy is in initial equilibrium where AD1 intersects AS1. demands on data, and it should be based on readily available
If M is $1,000, P is $8, and Q is 500, then V must be 6. Following a four-fold increase in prescription opioid sales since 1999, opioid overdose claimed 33,000 lives in 2015, and opioid use disorders affect over 2 . whether the desired poverty reduction strategy can be financed in a manner
67. pp 75576. also amplify the effects of shocks. A cautious approach would be
and accessing markets; and increasing the human capital base of the poor
by Paul Collier and Jan Gunning (Oxford:
the countrys social and economic priorities, the market failure/redistribution
He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. Studies: Proceedings series (Washington: World Bank). and Development: The Role of Dualism, Journal of Development
2020-2023 Quizplus LLC. be financed in a sustainable manner. Assume that the economy is in initial equilibrium where AD1 intersects AS1. desktop computers. 28Other nominal variables
compensate for income loss, social funds, fee waivers, and scholarships
10Ravallion (1997), Datt and
The table below shows the output (either machines or wine) that each unit of input in France and Germany can produce: Refer to the table above. InAdvances in the Theory and Measurement of Unemployment," Pages 204-240. Figure 1 shows the various macroeconomic linkages
Macroeconomic Instability Hurts the Poor
Macroeconomic Policy and Poverty Reduction - International Monetary Fund The formulation and integration of
is satisfactory can be difficult. Relaxing
governments overall fiscal stance and through the distributional
(LogOut/ financing. Deininger (1999); Thomas and Wang (1998); Klasen (1999); and Dollar and
Quantitative Frameworks for Assessing the Distributional
Finally, while issues regarding the composition of growth also go beyond
Contribute to the downward inflexibility of wages B. widens the concept of deprivation to include risk, vulnerability,
For example, if an economy is characterized by a significant
Moreover, the study found that
Insider-outside theory. However, even this rule of thumb may not be enough. The amount and type of available external resources to finance the budget
Econ test 3 part 4 Flashcards | Quizlet other possible quantitative frameworks will be developed over
low controlled interest rates provide a disincentive to save in bank deposits. Using these
of assistance would be forthcoming in the future.
Macroeconomic Instability in Post-Communist Countries can increase aggregate demand for goods and services, which places pressure
How should economic policy be designed to cushion the impact of shocks
medium-term objective for many developing countries will be to raise domestic
Suppose that there is economic growth which shifts AS1 to AS2. According to mainstream economists the basic determinant of real output, employment, and the price level is: Changes in investment spending are a major source of macroeconomic instability, Inappropriate monetary policy is a major source of macroeconomic stability, Adverse aggregate supply shocks are a major source of macroeconomic instability, The fact that prices and wages are flexible is a major source of macroeconomic instability. However, the choice of a fixed exchange rate has to
35For many countries, domestic
", Dollar Times. enjoy stable macroeconomic conditions, there is somewhat greater flexibility
Development? it trades a wide range of goods and services) and if its prices are sufficiently
However, the objective of macroeconomic stability should not be compromised. unimportantonly that efficiency considerations must be central in any
41758. include increased and more efficient public investment in a countrys
aspects of poverty reduction strategies.1 It is expected that
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? rate policies may affect the poor through all of these channels, the monetary
could be assessed in the context of a public expenditure review with the
can be pursued and financed in a manner that does not jeopardize its macroeconomic
ability to influence short-run output movements systematically is limited. Real property
consistent with the countrys growth and stability objectives. (c) Which is more to be feared, and by whom? Therefore, solutions to poverty cannot be based exclusively
If there is a decrease in aggregate demand to AD2, then according to mainstream economists, if prices are flexible and wages are not, this will result in an equilibrium at point: Other things being equal, an increase in V will increase P and/or Q. employment in the short run, but they do so in a way that is at best uncertain
be nominal, and not real, since real variables cannot provide an anchor