Реферат: Conflicting Goals In Economic Growth Essay Research

allows it to achieve a more appropriate balance between short-run and long-run

objectives.

When unemployment is high the policy that should take place is inflation

should increase slightly to drive up prices in order to cause increases in

output. When unemployment is below average and nearing full employment the

policy that should take place is to slightly lower the productivity of the

workers and therefore cause a decrease in the output. This would slow the

economy down and into the ideal condition of maximum employment. When the

production is at its maximum and unemployment at a minimum the government must

raise the inflation rate in order to make sure that the situation stays where it

is. It must be sure not to raise inflation too sharply or else everyone will be

afraid to spend their money.

The belief that a 4% unemployment rate and stable prices are inconsistent

is shaped by the widely accepted “natural rate hypothesis.” It argues that

monetary policy has no effect on the economy’s unemployment rate, which is often

called the natural rate of unemployment. The reason is that, in the long run,

unemployment depends on so-called “real” factors–such as technology and

people’s preferences for saving, risk, and work effort; these factors are beyond

the reach of monetary policy. Most current estimates place the natural rate of

unemployment in the range of 5?6?.

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.