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A relative poverty line is set at around 50% of the average per capita income
of the country.
The subjective poverty line refers to that level of income at which people
feels that their income is just equal to the minimum income required to meet
end need.
Lecture 27
Part I : Poverty
Part II: Five Debates Over Macroeconomic Policy
Instructor: Prof.Dr.Qaisar Abbas
Course code: ECO 400
Lecture 27
Part I
Poverty
Calories Intake
Calories Intake: Poverty Lines Used in the region
Country
Pakistan
India
Bangladesh
Sri Lanka
China
Vietnam
Philippines
Thailand
Indonesia
Nepal
* Adult equivalent
(1985, 2002)
National
Rural
Urban
2350*
2112
2250*
2150
2100
2000
1978
2100
2250*
2350*
2400
2112
2000
2250*
2350*
2100
2112
2000
2250*
Source: GOP
Employment
(in millions)
Number of New
Employment
(in millions)
FY 97
34.13
FY 00
36.32
2.19
FY 02
38.88
2.56
FY 04
42.00
3.12
FY 06
46.94
4.94
FY 07
47.65
0.71
FY 08
49.09
1.44
FY 09
50.79
1.70
11.0
Human
Development
Rural
Development
24.3
34.2
44.5
59.7
Safety Nets
11.0
15.4
17
11.4
36.1
18.8
Governance
33.0
38.5
41.8
50.5
6.8
7.2
Total
as % of GDP
3.8
16.6
4.3
28.5
4.6
41.7
4.8
63.6
4.9
76.6
4.9
104.5 121.8
435.2 276.1
94
97
114
7.46
30.6
34.46 23.90
22.3
17.2
Urban
20.9
22.69 14.90
13.1
10.1
Rural
34.7
39.26 28.10
27.0
20.6
Poverty Line *
CENSUS
(1998)
PSLM
(2004-05)
PSLM
(2006-07)
38.1
55.0
6.6
81.2
70.5
20.2
24.2
68.7
7.1
86.6
83.9
29.5
24.3
69.1
6.6
85.9
86.6
30.0
26.0
34.0
36.0
Source: FBS
Health Indicators
Unequal States
Lecture 27
Part II
Five Debates Over Macroeconomic
Policy
1.
2.
3.
4.
5.
Debate I
Should monetary and fiscal policymakers try to stabilize the
economy?
The economy is inherently unstable, and left on its own will fluctuate.
There is no reason for society to suffer through the booms and busts of the
business cycle.
Monetary and fiscal policy can stabilize aggregate demand and, thereby,
production and employment.
Monetary policy affects the economy with long and unpredictable lags
between the need to act and the time that it takes for these policies to work.
Many studies indicate that changes in monetary policy have little effect on
aggregate demand until about six months after the change is made.
Fiscal policy works with a lag because of the long political process that
governs changes in spending and taxes.
It can take years to propose, pass, and implement a major change in fiscal
policy.
All too often policymakers can inadvertently exacerbate rather than mitigate
the magnitude of economic fluctuations.
Debate II
Should monetary policy be made by rule rather than by discretion?
There may be a discrepancy between what policymakers say they will do and
what they actually docalled time inconsistency of policy.
Committing the Fed to a moderate and steady growth of the money supply
would limit incompetence, abuse of power, and time inconsistency.
The alleged problems with discretion and abuse of power are largely
hypothetical.
Also, the importance of the political business cycle is far from clear.
Debate III
Should the central bank aim for zero inflation?
Con: The central bank should not aim for zero inflation
Debate IV
Should fiscal policymakers reduce the government debt?
When the debts and accumulated interest come due, future taxpayers will
face a difficult choice:
They can pay higher taxes, enjoy less government spending, or both.
The government debt can continue to rise because population growth and
technological progress increase the nations ability to pay the interest on the
debt.
Debate V
Should the tax laws be reformed to encourage saving?
When the saving rate is higher, more resources are available for investment
in new plant and equipment.
The U.S. tax system discourages saving in many ways, such as by heavily
taxing the income from capital and by reducing benefits for those who have
accumulated wealth.
The consequences of high capital income tax policies are reduced saving,
reduced capital accumulation, lower labor productivity, and reduced
economic growth.
Many of the changes in tax laws to stimulate saving would primarily benefit
the wealthy.
High-income households save a higher fraction of their income than lowincome households.
Any tax change that favors people who save will also tend to favor
people with high incomes.
Reducing the tax burden on the wealthy would lead to a less egalitarian
society.
This would also force the government to raise the tax burden on the poor.
Critics of active policy emphasize that policy affects the economy with a lag
and our ability to forecast future economic conditions is poor, both of which
can lead to policy being destabilizing.
Advocates of rules for monetary policy argue that discretionary policy can
suffer from incompetence, abuse of power, and time inconsistency.
Critics of rules for monetary policy argue that discretionary policy is more
flexible in responding to economic circumstances.
Advocates of reducing the government debt argue that the debt imposes a
burden on future generations by raising their taxes and lowering their
incomes.
Critics of reducing the government debt argue that the debt is only one
small piece of fiscal policy.
Advocates of tax incentives for saving point out that our society discourages
saving in many ways such as taxing income from capital and reducing
benefits for those who have accumulated wealth.