Author Question: Are the goals of monetary policy in harmony or in conflict (a) in the long run and (b) in the short ... (Read 113 times)

Collmarie · **on:** Jun 29, 2018

Are the goals of monetary policy in harmony or in conflict (a) in the long run and (b) in the short run?

What will be an ideal response?

Question 2

Human capital refers to

A) the money people have.
B) the wealth people have.
C) the machines workers have to work with.
D) the accumulated skills and training workers have.

tandmlomax84 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The monetary policy goals are essentially in harmony for the long run. In the long run, stable prices will bring about maximum employment because firms and households can make the best possible decisions against a backdrop of stable prices. With stable prices, the inflation rate is lowperhaps even zero if prices are precisely stable. The nominal interest rate equals the real interest rate plus the (expected) inflation rate. If the inflation rate is low, then the nominal interest rate will be as low as possible. In the short run, however, the monetary policy goals might conflict with each other. In the short run, in a recession the Federal Reserve might lower the federal funds rate and increase the growth rate of the quantity of money to combat the recession. The Fed's policy will increase employment and real GDP but also increase the price level and eventually the nominal interest rate.

Answer to Question 2

D