Conflicts in Monetary Policy

Title: Conflicts in Monetary Policy
Category: Business & Economy / Economics | 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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