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Chapter 28: Q. 37 (page 689)

Is it preferable for central banks to primarily target inflation or unemployment? Why?

Short Answer

Expert verified

Unemployment and inflation, both are primary macroeconomic variables that hold a considerable effect on the economy.

Step by step solution

01

Concept Introduction

Unemployment and inflation, both are primary macroeconomic variables that hold a considerable effect on the economy. The remarkable increase in any of these two can drag a healthy economy to a worse position. Now, this is inconceivable to tell that which one should be the primary target of the Central bank.

02

Explanation

The Short-run Phillips arc shows that there is a balancing between unemployment and inflation. Economists think that small inflation is beneficial for an economy and whole employment is not viable. So, this is anticipated to keep a healthy proportion between these two variables. And in a situation, a Central Bank should act as the circumstances demand.

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Most popular questions from this chapter

Suppose the Fed conducts an open market sale by selling $10 million in Treasury bonds to Acme Bank. Sketch out the balance sheet changes that will occur as Acme restores its required reserves (10% of deposits) by reducing its loans. The initial balance sheet for Acme Bank contains the following information: Assets 鈥� reserves 30, bonds 50, and loans 250; Liabilities 鈥� deposits 300 and equity 30.

Why is it important for the members of the Board of Governors of the Federal Reserve to have longer terms in office than elected officials, like the President?

If GDP now rises to 1,600, but the money supply does not change, how has velocity changed?

Suppose now that economists expect the velocity of money to increase by 50% as a result of the monetary stimulus. What will be the total increase in nominal GDP?

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