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Conflicts in Monetary Policy
Title: Conflicts in Monetary Policy
Category: Business & Economy / Economics
Details: Words: 917 | Pages: 3.9 (approximately 235 words/page)
Conflicts in Monetary Policy
Goals of monetary policy are to 'promote maximum employment, inflation
(stabilizing prices), and economic growth.' If economists believe it's possible
to achieve all the goals at once, the goals are inconsistent. There are
limitations to monetary policy.
The term 'maximum employment' means that we should try to hold the
unemployment rate as low as possible without pushing it below what
economists call the natural rate or the full- employment rate. Pushing
unemployment below that level …showed first 75 words of 917 total…
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…showed last 75 words of 917 total…as technology
and people's preferences for saving, risk, and work effort; these factors are
beyond the reach of monetary policy. Most current estimates place the natural
rate of unemployment in the range of 5¾-6¾%.
Consistent attempts to expand the economy beyond its potential for
production will result in higher and higher inflation, while ultimately failing
to produce lower average unemployment. Therefore, most economists would
argue that there are no long-term gains from consistently pursuing
expansionary policies.
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