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
Analyze the ways in which managers could use the Federal Register to determine the single most significant challenge associated with its use, and how managers could address that ch

term paper on determinat and multiplier of money supply

How will a fall in domestic investment affect the trade surplus and net capital outflows in the domestic economy, the trade deficit and capital inflows in the rest of the world, in

Need answers for the questions (Chapters 10, 11 & 12) Please see attached questions. Thanks!

asiignment on ppc

The tax-adjusted Multiplier and the balanced budget Multiplier are explained below: Taxes act as drag on the multiplier effect of government expenditure, because they represent

Q. Describe the macroeconomic variables? In this section we have summarizes all the macroeconomic variables. The first column denotes the symbol we use for variable whereas col

if a 10% decrease in the price of product A brings about a 3% increase in the sales of product B, then a. product A and B are complementary b. the cross elasticity of demand

Some manufacturing and agricultural products produced in the Midwest are exported to overseas markets.  US consumers and businesses also purchase many products produced outside the

A manager at a local bank analyzed the relationship between monthly salary and three independent variables: length of service (measured in months), gender (0 = female, 1 = male) an