Question

What are the three possible goals of central bank monetary policy? Is it possible that a central bank that aims at more than one goal could face conflicts between the two goals that it is considering? Explain.

Answer 1

Answer - Three possible goals of monetary policy are as follows -

1 - To reduce the rate of unemployment in the economy through the adequate monetary measures .

2 - To control the rate of inflation in the economy by applying the adequate policies which result in the stabalisation of prices in economy.

3 - To maintain the interest rates in the economy.

Yes , the central bank may face the conflicts in the goals. In a goal of reducing the rate of unemployment in the economy , it will lead to the inflationary conditions in the economy and hence reduce the value of money. In the goal of reducing inflation in economy , it will have to compromise with the increase unemployment rates.