Goals Of Monetary Policy Are To Promote Maximum Employment, Inflation

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Term Paper Title	Goals Of Monetary Policy Are To Promote Maximum Employment, Inflation
# of Words	858
# of Pages (250 words per page double spaced)	3.43

   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 would cause inflation to rise and thereby ruin
the other objective--stable prices, economic growth, which is our objectives
in the long run.

  Overall financial stability will lead to a better balance between consumption
and saving that will make resources available for investment purposes, reduce
changes in the economy created by the inflation in the past, and by the
reactions of savers, as well as fostering high and sustainable economic
growth; and contribute towards an investor friendly environment that will
attract foreign investors to the country.

   Evidence has suggested that economies perform better, in terms of growth,
employment and living standards, in low inflation environments than they do
when inflation is persistently high. This evidence is a comparison  across
countries over long periods. The association between economic performance,
measured by growth of output or growth of productivity, and inflation. This
indicates a negative relation; that is, the higher the inflation, the lower the
rate of real growth.

   Evidence suggesting that low inflation promotes growth has motivated
recent decisions by a number of central banks and governments, most notably
New Zealand. Canada, the United Kingdom and Sweden also have moved in
recent years to establish monetary policy with official low inflation targets.
Decisions to adopt a policy objective of low inflation suggest that other
policy-makers are reading the evidence pertaining to inflation and growth as
we are.

      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.

    Monetary policy can determine the economy's average rate of inflation in
the long run. And that's important for the economy, because high inflation
can hinder economic growt...

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