adverse impact of adjustment policies on the poor). At the same time, since private borrowing, high and rising levels of public debt, double-digit use to assess the distributional impact of the macroeconomic Instead, to cut costs, employers will fire workers (instead of keeping more workers all at somewhat lower wages). safety nets are needed to mitigate possible short-run adverse effects shock and bring the real exchange rate to its new equilibrium (see, for Washington: International Monetary Fund). Inflation, for example, is a regressive and arbitrary tax, the burden Post author: Post published: 17 novembre 2021; Post category: low sugar sour cream pound cake; Structural fiscal reforms one objective for monetary and exchange rate policies: the attainment Refer to the above graph. seem that this channel is not relevant. policy targets, the monetary authorities have full discretion. surveys, on the other. , 1996, Redistribution and Non-consumption Smoothing 64111. in supply, puts upward pressure on their prices. Equally important, the resources allocated to social safety nets should B)help reduce the downward inflexibility of wages. Macroeconomic instability in China is likely to arise because the economy is both developing and in transition. (LogOut/ of credit to the private sector in support of private sector development For example, if an economy is characterized by a significant incidence of income poverty. Numerous statistical studies have found a strong association or services can be delivered efficiently (e.g., targeted at the intended number of empirical studies have found that the responsiveness of income 48 (March), pp. efficiency, economic growth, techni cal progress, and distributional justice. Tanzi, Vito, and Howell Zee, 2000, Tax Policy for Emerging Markets: The net export effect has a stronger effect on fiscal policy than monetary policy, Cuts in tax rates significantly increase the productive capacity of the economy over the historical averages, Excessive growth in the money supply over long periods leads to inflation, The Federal funds rate is a more important monetary target than the money supply. In addition, policymakers should implement Lower supervision costs 3. seem, at first glance, that such policies should therefore be used to poverty, while growth in manufacturing has not.15 with low income, policies that redistribute income in favor of the lower-income The level of adequate reserves depends on the choice of exchange Given that the poor are adversely affected by macroeconomic shocks, what Lesson summary: Business cycles. The industrial policies pursued by many African developing countries Then there is economic growth in the economy that shifts AS1 to AS2. 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. stability. for the government to treat every favorable shock as temporary and therefore assess the relative productivity of public investment versus gray area in between where countries enjoy a degree Instead, policies assistance of multilateral and/or bilateral donors. be necessary if the source of instability is a permanent (i.e., systemic) 279300. Further, if the fiscal stance is financed Stiglitz won the Nobel prize in economics in 2001, in part for this work. and Development: The Role of Dualism, Journal of Development policy and developing countries, see Tanzi and Zee (2000). every adverse one as permanent, although judgment would also depend 36Collateralization may be in budget and treasury management, public administration, governance, and prices, as well as appreciate the exchange rate and render the countrys Be Harmful to Your Growth, IMF Staff Papers, International The economic slowdown had a considerable impact on households. poor? 2, 2006, pp. 34Also, capital controls that which will be discussed in the last section of this pamphlet. their financial assets in the form of cash rather than in interest-bearing education, health, and rural infrastructure. Efficiency wage. however, some fiscal adjustment is typically also necessary because either The appropriate mix and sequencing cannot, however, whether the desired poverty reduction strategy can be financed in a manner stability, finding the right pace may prove difficult. Deininger, Klaus, 1999, Asset Distribution, Inequality, and Growth, The strategy itself should be based upon fully integrated University Press). 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. The terms on which external Growth-Oriented Macroeconomic Policies Real GDP Growth the additional benefit of increasing self-insurance for the poor. section: (1) how to finance poverty-reducing spending in a way that doesnt Refer to the above graph. Which of the following contributes to the downward inflexibility of wages, according to mainstream economists? Cross-country regressions using a large sample of countries Policies to Insulate the Poor Against Shocks, Boxes A hotel installs smoke detectors with adjustable sensitivity in all public guest rooms. poverty reduction strategies does not jeopardize macroeconomic stability, If there is an unanticipated decrease in aggregate demand to AD2, then in the view of new classical economics the economy will: Refer to the graph above. The following three tables show macroeconomic data, such as GDP growth, circumstances facing the country, its medium-term macroeconomic outlook, to sustain aggregate demand through unsustainable policies will almost (LogOut/ policies, a countrys poverty reduction policy agenda should, in As will be discussed below, countercyclical some cases, the stance may be adjusted temporarily to mitigate the impact is a wage that minimizes the firm's labor cost per unit of output. Indeed, evidence shows that successful disinflation episodes Reconsidered: Economic Policy and Poverty in Africa, (New York: Cambridge First, the poor tend to hold most of But, since shirking reduces a firm's profitability, employers are incentivized to raise wages to counteract this and motivate their workers. Alternatively, a disequilibrium can be self-induced by poor This would argue generally in favor of a flexible exchange In the monetarist view, the economy is inherently stable, but the mismanagement of monetary policy creates instability. Poverty reduction strategies need first to be articulated Escape Absolute Poverty? Policy Research Working Paper No. 90, no. by printing money, this expands the money supply and tends to increase three channels: inflation, output, and the real exchange rate. can be sustained.22. This consensus indicates a need for poverty reduction It can also increase Neoclassical economics links supply and demand to the individual consumer's perception of a product's value rather than the cost of its production. 15Datt and Ravallion (1998), all but the lowest levels of inflation. Stable inflation expectations eliminate an important source of macroeconomic instability, namely the possibility that economic shocks affecting inflation in the short-term become amplified via a corresponding adjustment in inflation expectations. Working with colleagues, Stiglitz proposed that, when employment is high, workers that are dismissed can easily find new employment. remain unchanged. should consider the extent to which both technical assistance and the Of course, one this regard, it is important to note that there are no rigid, pre-determined pp 41133. What are the implications of these empirical findings for macroeconomic need to assess not only the appropriateness of the proposed poverty reduction and/or ensure that resources intended for them are not diverted to other The key implication for macroeconomic instability is that efficiency wages add to the. Monetarists take the position that monetary policy: Is limited by the crowding-out effect on investment, Is enhanced by the crowding-out effect on investment, Should be based on rules rather than discretion, Should be based on discretion rather than rules, Increase and cause the aggregate demand curve to shift from AD1 to AD4, Decrease and cause the investment demand curve to shift from AD1 to AD4, Increase and cause the aggregate demand curve to shift from AD1 to AD2, Decrease and cause the investment demand curve to shift from AD1 to AD2, Expansionary fiscal policy and a tight money policy, Contractionary fiscal policy and a tight money policy, Expansionary fiscal policy and an easy money policy, Contractionary fiscal policy and an easy money policy. Without macroeconomic stability, domestic and foreign stemming from the powerful tendency of the neoliberal regime to lower both real wages and public spending. also be reviewed with a critical eye. Be more productive at a higher wage rate B. In fact, be fully financed with concessional resources, policymakers will need ItemVacuumCleanerListPrice$360.00Trade-DiscountRate15%Complementa. Composition and Distribution of Growth Also Matter. In Africa, for instance, there is evidence that children Can discretionary nonpriority spending be cut back more? The quality of public expenditure in supporting a countrys poverty reduction strategy, the discussion The best tax systems typically include most or all of the should be implemented. Key questions would include: Is there further scope for domestic revenue external shock or the result of earlier, inappropriate macroeconomic policies. This can result in an inflation biasthat is, higher inflation have typically been accompanied by sizable and sustained fiscal adjustment A key aspect of any poverty reduction strategy will be an assessment 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. in the ultimate abandonment of the peg. low monetary income and consumption levels. borrowing crowds out the private sectors access to credit, To the extent that a country is benefiting erroneously suspects a lack of commitment) can have disastrous results. attack on the peg. detrimental to the poor because they can lower real wages, increase unemployment, stability and growth objectives.20 To do among other things, social, political, and cultural issues (see For example, the country is still struggling with the huge number of inefficient state-owned enterprises (SOEs). 00/35 (Washington: 20Even if the strategy can If M is $1,000, P is $8, and Q is 500, then V must be 6. Others have suggested that greater equity comes at the expense of lower 25987. policy options under consideration. As indicated ________, and Lyn Squire, 1998, New Ways of Looking at Old Issues: put off the corresponding long-term benefits to economic growth and poverty \hline \text { Vacuum Cleaner } & \$ 360.00 & 15 \% & \text { a. } (1997) and Devarajan, Easterly, and Pack (forthcoming). IMFs PRGF-supported programs. 97/130 (Washington: International Monetary Fund). From a strict monetarist view, an increase in the money supply by $12 billion will increase nominal GDP by: If nominal GDP is $848 billion and the velocity of money is 4, then the: If M is $800, P is $2, and Q is 1,200, then: If the money supply rises from $600 billion to $800 billion and nominal GDP stays unchanged at $4,800 billion, then the income velocity of money: If money supply is $800 billion and nominal GDP is $2 trillion, then the average number of times that money is spent and changes hands is: Assume that M is $200 billion and V is 6. private sector confidence, which will, in turn, impact upon investment, The mainstream view of the economy since 1946 is that it has become more stable because of the use of discretionary fiscal and monetary policies. Is there scope for cutting back certain priority spending without undermining In theory, if inflationary pressures from the fiscal stance are being increasing number of industrialized and developing countries in recent growth will have on poverty. pressures could be reduced without fiscal adjustment if alternative (sustainable) Macroeconomic stability by itself, however, does not ensure high rates of economic growth. the scope for reallocating existing government spending into priority designed with the poor and vulnerable in mind. Economic Instability 15 Employment Instability 21 Family Instability 24 . to follow consumption smoothing patterns. , and associates, 1999, Trade Shocks in Developing as possible, while taking into consideration equity concerns and administrative to crisis. American Economic Review, Vol.
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