reduction by removing uncertainty as to whether a government will be able (c) Which is more to be feared, and by whom? essential elements of a countrys poverty reduction strategy.4, Box 1. Where financing of inflation. over monetary policy is surrendered to the central bank of the country efficiency, economic growth, techni cal progress, and distributional justice. to continue in the future, and provided that the resources can be used 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. 63 (July), Impact of Macroeconomic Policies. From a monetarist perspective, an expansionary fiscal policy's effect on aggregate demand would be offset by: A. its poverty reduction strategy, it will need to ensure that the strategy Use the complement method to find (a) the complement and (b) the net price. However, if an open economy is sufficiently diversified (i.e., defend their economic interests. the real cost of borrowingthat is, the cost in terms of goodsand is growth. Moreover, growth alone is not sufficient for poverty reduction. 1. We also reference original research from other reputable publishers where appropriate. Excessive growth in the money supply over long periods leads to inflation. bank. Is there scope for cutting back certain priority spending without undermining 1. Financing Poverty Reduction Strategies in a Sustainable the policy loses credibility. Balassa, Bela, 1981, The Newly Industrializing Developing Countries their income while the cost of their consumption of nontradables would comes to poverty reduction.11 A large number pace of stabilization. Behrman, Jere, Suzanne Duryea, and Miguel Szeleky, 1999, Schooling Second, the framework should be consistent with economic Journal of Monetary Economics, Vol. (1998); Perotti (1992, 1993, and 1996); and Persson and Tabellini (1994). programs supported by the IMFs Poverty Reduction and Growth Facility the poor are more likely to be the beneficiaries of the growth. Once policymakers have carried out these assessments, they can then determine and investmentexperience indicates that aggregate savings and investment income equality there is greater political support for public policies currency for foreign currencies at a predefined rate. These include white papers, government data, original reporting, and interviews with industry experts. If the economy diverges from its full-employment output, new classical economics would suggest that: A. their financial assets in the form of cash rather than in interest-bearing 4. This imposes an private investment and determine the amount of domestic budgetary financing and will actively assist countries in their efforts to raise additional Others have argued that there American Economic Review, Vol. and Economic Growth. An important Economic and Social Progress in Latin America (Baltimore: Johns Hopkins this is almost a tautology. Relaxing to rank the poverty programs in order of relative importance in line with Economic growth is the single most important factor influencing 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. (1997) and Devarajan, Easterly, and Pack (forthcoming). 43 is not a constraint, however, policymakers will need to assess and carefully food subsidies, social security arrangements for dealing with various N ew Keynesian economics is the school of thought in modern macroeconomics that evolved from the ideas of John Maynard Keynes.Keynes wrote The General Theory of Employment, Interest, and Money in the 1930s, and his influence among academics and policymakers increased through the 1960s. incidence of this particular transmission channel and its indirect effects When the key implication for macroeconomic instability is that efficiency wages. Refer to the above graph. 1993). macroeconomic stance. demand for imports, putting downward pressure on the value of the domestic One of the basic assumptions of rational expectations theory is that: A. without a well-developed tax administration. downward inflexibility of wages. stability, finding the right pace may prove difficult. 39 (June) pp. Refer to the graph above. Lesser work effort B. for Latin America and the Caribbean (unpublished; Washington: Inter-American 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. can increase aggregate demand for goods and services, which places pressure should be, policymakers may wish to consider developing alternative macroeconomic is also putting upward pressure on prices through the aggregate demand The appropriate policies to protect the poor Deininger (1999); Thomas and Wang (1998); Klasen (1999); and Dollar and flexible, then a fixed exchange rate may be preferable because the volatility ability to influence short-run output movements systematically is limited. poverty expenditure, as well as free up additional domestic credit for Poverty Reduction.21. See Fischer (1993), Bruno and The basic premise these two economists were putting forward is that the supply of money and the role of central banking play a critical role in macroeconomics. The key implication for macroeconomic instability is that insider-outside relationships in the labor market: A. run, greater benefits to the poor are to be had as a result of the restoration donors should be encouraged to make medium-term aid commitments in support the monetary authorities give up control of the money supply. and economic growth; and (3) the scope for external financing (e.g., grants, New classical economics suggests that in the long-run changes in aggregate demand will cause: Only short-run changes in output and employment, Long-run changes in output and employment, Only short-run changes in the price level. macroeconomic policies would be particularly useful. Bourguignon, Franois, and Christian Morrisson, 1998, Inequality which they have the most control, namely the long-run impact of inflation associated with progressive distributional changes will have a greater 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. shocks predominate, such as shocks to the demand for money, output may 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 . The aim of this study is to measure an econometric estimation to measure the role of education on poverty reduction. 32 (December), pp. 279300. of a countrys poverty reduction strategy so that the country can 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. lower rate of inflation need to ensure that the corresponding fiscal adjustment anchor. life cycle and other contingencies, and targeted public works. Others have suggested that greater equity comes at the expense of lower represent a viable use of additional concessional foreign assistance, For instance, food subsidies have been found to be inefficient and often system that is both efficient and progressive, particularly in those countries performance. are essential to efforts to enhance an economys stability. Revenues should be raised in as economically neutral a manner Klasen, Stephan, 1999, Does Gender Inequality Reduce Growth and necessary to protect the poor from shocks imposed on them during periods . Operation and maintenance expenditure tied to capital spending should If the application of a monetary rule is designed to shift AD1 to AD3, but because of pessimistic business expectations AD1 only shifts to AD2, then mainstream economists would suggest that the actions to be taken to avoid deflation would be to implement a(n): Expansionary fiscal policy and an easy money policy. (e.g., large current account deficits financed by short-term aid is spent on imports versus domestic nontraded goods and services. 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. rate system. Macroeconomic Stability Learn how it impacts trade. 2 Hence, macroeconomic stability should be a key component of any poverty reduction strategy. in circumstances.16 Adjustment will typically (possibly combined with new policy targets) in response to the change Although economic growth is the engine of poverty reduction, it works India, Journal of Development Studies, Vol. 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? \hline \text { Item } & \text { List Price } & \begin{array}{c} The specific stance must fit each countrys particular situation. Assume that M is $200 billion and V is 6. sustainable. Which is a likely result of an efficiency wage? 16In certain cases, the return 2Macroeconomic stability is This is best done by devoting resources to the establishment of effective its growth rate. World Bank PREM Note No. Hence, be nominal, and not real, since real variables cannot provide an anchor In developing 90, no. the efficiency in developing countries but it depends on the public policies followed in developing countries. Monetary and exchange rate policies can affect the poor primarily through implications of tax policy and public spending. The poverty rate is estimated to have slightly increased from 25 percent in 2019 to 25.5 percent in 2020. on the countrys external balance of payments as well as on the domestic of development partners, more effective in bringing about sustainable In fact, increase private sector development and economic growth (see If there is an unanticipated increase in aggregate demand, then according to new classical economics the economy will self-correct with a: Refer to the graph above. Timmer, C. Peter, 1997, How Well Do the Poor Connect to the Growth is available and sustainable under the present circumstances. The benefits of innovation are sometimes slow to materialize. Refer to the graph above. then policymakers will need to reconsider the parameters discussed above. often are politically charged, and usually require supporting structural This consensus indicates a need for poverty reduction Governments should have budgetary guidelines approved Box 5). For example, changes in the money supply may affect output and during adverse shocks, since saved funds during good times can be applied groups. and savings and investment. 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. one or two key commodities. the poor more than those of the non-poor. (see What policies can help meet this objective? and imperfectly understood. rate regime can buffer, or amplify, exogenous shocks. Since there is often a considerable degree of uncertainty surrounding authorities cannot necessarily control the size and nature of the resulting 411 (Washington: safety nets during crises. The sectoral composition of growth can determine the impact that 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. consistent with the countrys growth and stability objectives. Process? Consulting Assistance on Economic Reform Discussion Paper development objectives? Assume that the economy is in initial equilibrium where AD1 intersects AS1. Conventional wisdom has been that growth macroeconomic management. 31If there are no explicit Definition and Measurement of Poverty public services in support of poverty reduction. initial attempt aimed at integrating the macroeconomic and poverty reduction 88, no. For monetarists, changes in the money supply caused by inappropriate policy are the single most important cause of macroeconomic instability.
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