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Goals of Monetary Policy in the United States

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Two goals of monetary policy in the United States are price stability and full employment. Are these goals always consistent with each other? Explain with the help of the appropriate graph(s).

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The two goals of the US monetary policy: price stability (or low inflation) and full employment are in conflict with each other in the short run but not in the long run.

This is usually shown using the Phillips curve that explains the relation between unemployment and inflation rate. It shows that ceteris paribus a higher inflation rate implies a lower unemployment rate and vice versa. Therefore, when the Fed tries to lower inflation rate it is simultaneously raising unemployment, and when it targets unemployment it is ...

Solution Summary

Two goals of monetary policy in the United States are highlighted.