to adopt a policy objective of low inflation suggest that other policy-makers are reading the evidence pertaining to inflation and growth as we are. Consistent attempts to expand the economy beyond its potential for production will result in higher and higher inflation, while ultimately failing to produce lower average unemployment. Therefore, most economists would argue that there are no long-term gains from consistently pursuing expansionary policies. Monetary policy can determine the economy's average rate of inflation in the long run. And that's important for the economy, because high inflation can hinder economic growth. For example, when inflation is high, it also tends to vary a lot, and that makes people uncertain about what inflation will be in the future. That uncertainty can hinder economic growth in a couple of ways--it adds an inflation risk premium to long-term interest rates and it complicates the planning and contracting by business and labor that are so essential to capital formation. High inflation also hinders economic growth in other ways. For example, because the tax system isn't in agreement with inflation, high inflation arbitrarily helps and hurts different sectors of the economy. In addition, it makes people spend their time hedging against inflation instead of pursuing more productive activities. Because the government can determine the economy's average rate of inflation, some commentators--and some members of Congress as well--have emphasized the need to define the goals of monetary policy in terms of price stability, which is achievable. One kind of conflict involves deciding which goal should take precedence at any point in time. For example, the government needs to be careful to avoid letting short-run temporary successes in preventing employment losses during recession...
