Incentives, Macroeconomics

Incentives

Incentives designed to increase effort, reward enterprise and encourage saving and investment include:

  1. an emphasis on the effect of a reduction in the marginal rate of income tax on effort, etc. even though it may reduce total tax revenue;

  2. a lower corporation tax to encourage investment and the taking of entrepreneurial risks;

  3. special help for new firms to obtain the initial capital, e.g. 'start-up' schemes, the Business Enterprise Scheme;

  4. profit-related pay (which gives employees a direct stake in the success of the company and enables pay to respond more readily to changing market conditions), share option schemes and wider share ownership generally.

The above represent a variety of measures to create conditions in which the free play of market forces can stimulate the economy to work more efficiently. They have formed a major part of the Thatcher government economic program since 1979.

NCE does not claim that a Friedman-style of the money supply is preferable to a money growth rate which responds positively to the unemployment rate. It claims that the unemployment rate is insensitive to demand policy choices and thereby suggests that these choices should be made on the basis of implications of alternative policy parameters for the stochastic evolution of the price level (and, therefore, the inflation rate).

Many macroeconomic models imply that the change in the unemployment rate depends upon lagged values of the unemployment rate (or ratio of actual to capacity output), real shocks and the forecast error between the current price level and the value anticipated by the market on the basis of information at an earlier date, when production and spending decisions were made. A necessary condition for the validity of the NCE is the Muth Rational Expectations Hypothesis (MRE) that the forecast error is a serially uncorrelated term with a zero expectation. It follows that the mathematical expectation of the change in the unemployment rate just depends upon lagged unemployment rates which reflect frictions in the economy resulting from costs of adjustments.

Posted Date: 9/18/2012 7:18:23 AM | Location : United States







Related Discussions:- Incentives, Assignment Help, Ask Question on Incentives, Get Answer, Expert's Help, Incentives Discussions

Write discussion on Incentives
Your posts are moderated
Related Questions
Who decides what goods services will be produced and sold in the US? Ans) It is mostly the American consumer. The US government also plays a big role in the nation's economy, co

In the view of above complications, there is a long-standing debate on whether the fiscal policy should be active or passive in nature. Note that in the Keynesian context; even a p


What are the uses of time series data?

The U.K. produces and imports eggs. Suppose that the government imposed a quota on imports: Foreign suppliers could export no more than Q eggs (regardless of price). What effect do

Problem >> Explore the relationship between Artificial intelligence and Neural networks. The systems which use this type of intelligence are known as artificial intelligent

conditions for steady state in solow model.in what respects is golden rule different from steady state?

calculate, a.the total revenue b.the average revenue c.the marginal revenue price 5 4 3 2 1 0 quantity 0 1 2 3 4 5.

The demand function for Newton's Donuts has been estimated as follows: Qx = -14 - 54Px + 45Py + 0.62Ax where Qx represents thousands of donuts; Px is the price per donut; Py

how inflation trade off is not feasible under adaptive expectation