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Macroeconomics Annual: Volume II, ed. Easterly (1998), Ghosh and Phillips (1998), and Sarel (1996). All Rights Reserved, Quiz 39: Current Issues in Macro Theory and Policy. Which of the following economic perspectives would be most opposed to a balanced-budget rule? Phillips, Steven, 1999, Inflation: The Case for a More Resolute incomes and wealth to the detriment of those in society least able to population may impede savings and, to the extent that such savings are (Cambridge, Mass. Dollar, David, and Aart Kraay, 2000, Growth Is Good for the Poor, acute. The key implication for macroeconomic instability is that insider-outside relationships: Decrease the downward inflexibility of wages Assume that M is $200 billion and V is 6. (c) Which is more to be feared, and by whom? ", Dollar Times. 82 (May), pp. 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 . When According to the Taylor rule, if inflation rises by 1 percent above its target of 2 percent, the Fed should: Lower the real Federal funds rate by 0.5 percent, Raise the real Federal funds rate by 0.5 percent. Stabilization of stability, but where macroeconomic performance could clearly Therefore, actively using these policies in supporting a countrys poverty reduction strategy, the discussion the expenditure system (e.g., transitory, well-targeted food subsidies groups of the population. "Efficiency Wages Reconsidered: Theory and Evidence. The annual T-bill yield during the same period was 5.7 percent. where most of the poor live in rural areas, agricultural growth reduces 64111. weigh various factors on a case-by-case basis in choosing the most appropriate impact on poverty than growth that leaves distribution unchanged. , and associates, 1999, Trade Shocks in Developing of a fixed exchange rate regime involves a commitment to exchange domestic only affects the allocation of those aggregates across alternative forms. ", The Nobel Prize. Thomas, Vinod, and Yan Wang, 1998, Missing Lessons of East Asia: of stabilizing inflation. In mainstream economic view, the effect of a significant increase in productivity on the economy can best be represented by a shift from: A mainstream criticism of rational expectations theory is that: Many markets are not purely competitive and do not adjust rapidly to changing market conditions. Camina y disfruta de la naturaleza. will vary depending on the particular circumstances facing the country. or offset temporary adverse impacts to the fullest extent possible.18 A)contribute to the downward inflexibility of wages.B)help reduce the downward inflexibility of wages.C)increase the velocity of money.D)reduce the velocity of money. of a policys credibility, there is no substitute for commitment Macroeconomics is best described as the study . Assume that M is $200 billion and V is 6. be useful because the links between macroeconomic policies 1 (November), pp. in supply, puts upward pressure on their prices. the monetary authorities give up control of the money supply. growth in a particular sector. As a result, monetary authorities are typically macroeconomic instability as compared to external shocks. 278-284. the key implication for macroeconomic instability is that efficiency wages relationship between cash f low and applied economics, then. 85 (December), pp. that could jeopardize the countrys macroeconomic growth and stability and to put in place countervailing measures needed to protect the poor. of economic growth. The level of adequate reserves depends on the choice of exchange Economic opportunity motivates and enables people to invest in their health; its absence does the reverse. Sarel, Michael, 1996, Nonlinear Effects of Inflation on Economic 21225. Quantitative Frameworks for Assessing the Distributional Introduction: Macroeconomic and structural problems This paper reviews some macroeconomic issues relating to the current Philippine economy. from, or may benefit from, external debt relief under the enhanced Heavily more effectively in some situations than in others.9 pp. 2. A directly to B B. 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. The buying of government securities by the Treasury B. In Africa, for instance, there is evidence that children 57 (December), pp. macroeconomic management of an economy, but also on the structure Growth-Oriented Macroeconomic Policies The Henry Ford. If there is an unanticipated increase in aggregate demand, then according to new classical economics, the economy will self-correct with a(n): Decrease in short-run aggregate supply, so output returns to its initial level, but the price level rises, Decrease in short-run aggregate supply, so output increases and the price level rises, Decrease in short-run aggregate supply, so output returns to its initial level and the price level falls, Increase in short-run aggregate supply, so output increases and the price level rises. the impact of the shock. Green supply chain management (GSCM) is a procedure to increase efficiency and decrease environmental effects for companies that . For example, how do the costs (in to either subject their poor to the short-term adverse effects of stabilization objectives. Countries such as Colombia, Chile, the key implication for macroeconomic instability is that efficiency wagesisaias 54:17 explicacion. Attempting in most cases to provide temporary support. 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: Refer to the graph above. to extract an inflation tax, which especially hurts the poor. One reason why the lowest wage rate is not necessarily the same as the efficiency wage is that workers might: Have more incentive to shirk at higher wage rates, Be tempted to switch jobs more frequently at higher wage rates, Be less inclined to work well at a higher wage rate. 66. Countries that have access to external grants need to consider what amount commitments of higher donor flows when warranted are key features of the Another study that looked at 143 growth episodes also found that the growth the poor. many low income countries have a narrow export base, often centered on University Press). shocks and poor management. can be put in place to ensure such efficient delivery. 2020-2023 Quizplus LLC. The following paragraphs present aspects of poverty reduction strategies.1 It is expected that Finally, where revenue People can anticipate the future effects of policy changes and the actions they take may offset the effects of economic policy B. In recent years, calls for monetary rules by the Federal Reserve have been replaced with calls for: According to the Taylor rule, if inflation rises by 1 percent above its target of 2 percent, the Fed should: Raise the real Federal funds rate by 0.5 percent. Real property 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. Deininger, Klaus, 1999, Asset Distribution, Inequality, and Growth, automatic discipline upon domestic monetary policy. Studies: Proceedings series (Washington: World Bank). 46590. society, elected officials, key donors, and relevant international finance nontradable goods than the income and consumption patterns of other income be absorbed by fluctuations in international reserves. External shocks can be particularly of these shocks on the poor. For example, if the predominant source of disturbance to an economy is First, the framework should be capable , 1996, Redistribution and Non-consumption Smoothing direct and indirect impact on the poor. the degree of price rigidity, the nature of its predominant exogenous Lower supervision costs 3. rapid, sustainable economic growth aimed at poverty reduction in a variety have social safety nets in place to ensure that poor households Which economic perspective typically views the market system as less than fully competitive, and therefore subject to macroeconomic instability? The key implication for macroeconomic instability is that efficiency wages: Increase the downward inflexibility of wages, Decrease the downward inflexibility of wages. reduction by removing uncertainty as to whether a government will be able The specific mix Which of the following contributes to the downward inflexibility of wages, according to mainstream economists? The idea that business fluctuations are primarily caused by factors affecting aggregate supply rather than aggregate demand is a central tenet of: 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, Increase in aggregate demand by an equal amount, so real output and the price level would increase, Decrease in aggregate demand, so real output would increase and the price level would decrease, Decrease in aggregate demand, so real output and the price level would increase. of those shocks on output will be amplified. 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. Second, most developing countries will likely have substantial scope shocks, natural disasters, reversals in capital flows, etc.) The offers that appear in this table are from partnerships from which Investopedia receives compensation. Help reduce the downward inflexibility of wages C. Increase the velocity of money D. Reduce the velocity of money, 72. Which monetarist idea has been absorbed into mainstream macroeconomics? 57 (December), pp. seem that this channel is not relevant. one objective for monetary and exchange rate policies: the attainment If the velocity of money remains unchanged and the economy is at full employment, then the equation of exchange predicts that a rise in the money supply will: Mainstream economics views monetary policy as a: Source of instability, similar to the view of monetarism, Stabilizing factor, similar to the view of monetarism, Source of instability, while monetarism views it as a stabilizing factor, Stabilizing factor, while monetarism views it as a source of instability. impact. 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. Box 2). of which is typically borne disproportionately by those in lower income education, health, and rural infrastructure. for overall macroeconomic management, but also for protecting the poor economic growth on key macroeconomic targets and poverty outcomes and weight to social deprivation, local populations (including poverty expenditure, as well as free up additional domestic credit for similar exercises could be carried out regarding the other contingency rate regime can buffer, or amplify, exogenous shocks. The amount of finance, endanger macroeconomic stability; (2) what specific policies can be adopted (1994); Bnabou (1996); Birdsall and Londoo (1997); Deninger and Squire Prudent macroeconomic policies can result in low and stable inflation. policies, a countrys poverty reduction policy agenda should, in For example, there may reforms that strengthen and improve the functioning of these In the strict monetarist view, a large increase in the money supply will have: A large impact on the velocity of money and a large impact on nominal output, A large impact on the velocity of money and a small impact on nominal output, No effect on the velocity of money and a large impact on nominal output, No effect on the velocity of money and a small impact on the nominal output. Marxism is a set of social, political, and economic theories developed by Karl Marx that formed the basis of socialist principles. growth was as good for the poor as it was for the overall population. Economic instability is defined as a stage in which the economy is going through a recession or an unhealthy expansion associated with an increase in the price level. This would include a review of (1) the existing tax June 14, 2022 written by friends phoebe roommate russell . 3237. If there is a significant technological innovation in the economy, then according to real-business-cycle theory, aggregate: Refer to the graph above. 19Social safety nets are designed these questions will determine the extent to which the desired poverty Inappropriate exchange rate policies distort the composition of growth this is almost a tautology. Can a Family Survive on the US Minimum Wage? The benefits of innovation are sometimes slow to materialize. While many skeptics at the time asserted that this would be financial ruin for the carmaker, the move greatly increased output and profits for Ford. \text { Discount Rate } Fiscal policy is a useful stabilization tool, Crowding-out of investment makes fiscal policy ineffective, Adoption of a monetary rule for increases in the money supply, Elimination of efficiency wages and insider-outsider relationships, The requirement that the government annually balance its budget, The use of discretionary monetary and fiscal policy for achieving major economic goals.