Conflicts in Monetary Policy

Conflicts in Monetary Policy

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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...

Conflicts in
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Excerpt from file: Goalsofmonetarypolicyareto"promotemaximumemployment,inflation (stabilizingprices),andeconomicgrowth."Ifeconomistsbelieveit'spossible toachieveallthegoalsatonce,thegoalsareinconsistent.Thereare limitationstomonetarypolicy. Theterm"maximumemployment"meansthatweshouldtrytoholdthe

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