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 arelimitations to monetary policy. The term "maximum employment" means that we should try to hold theunemployment rate as low as possible without pushing it below what economistscall the natural rate or the full- employment rate. Pushing unemployment belowthat 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 betweenconsumption and saving that will make resources available for investmentpurposes, reduce changes in the economy created by the inflation in the past,and by the reactions of savers, as well as fostering high and sustainableeconomic growth; and contribute towards an investor friendly environment thatwill 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 wheninflation is persistently high. This evidence is a comparison across countriesover long periods. The association between economic performance, measured bygrowth of output or growth of productivity, and inflation. This indicates anegative relation; that is, the higher the inflation, the lower the rate of realgrowth. Evidence suggesting that low inflation promotes growth has motivatedrecent decisions by a number of central banks and governments, most notably NewZealand. Canada, the United Kingdom and Sweden also have moved in recent yearsto establish monetary policy with official low inflation targets. Decisions toadopt a policy objective of low inflation suggest that other policy-makers arereadi...
