Question

What are the issues faced by government policymakers in their attempts to maintain stable prices? Please explain in more detail.

Answer 1

The price stability means the general price level should not change frequently or price change must be predictable and small.

There is tradeoff between the employment and the price stability. the policy makers have to make the balance between the employments and price stability. The controlling of price rise would cause the fall in the employment opportunities. Thus, the full employment objective can be compromised by the pursuing price stability objectives.

Thus here the GDP level also might see decline during the dear policies to control the inflationary pressures.

Further, the policy makers do not have the right amount of quality data regarding the price level and employments. Thus policies followed by the policymakers could lead to the undesirable outcomes.