Реферат: Conflicting Goals In Economic Growth Essay Research

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

recessions lead to longer-run failures in maintaining low inflation. Another

kind of conflict involves the potential for pressure from the political arena.

For example, in the day-to-day course of governing the country and making

economic policy, politicians may be tempted to put the emphasis on short-run

results rather than on the longer-run health of the economy. The government is