Conflicting Goals in Economic Growth
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 ...