Explain monetary policy goals and discuss any goal conflicts in ...

[mp14]

Explain monetary policy goals and discuss any goal conflicts in the long run and the short run.
 
  What will be an ideal response?

Question 2

In a dynamic economy, there will always be some frictional unemployment.
 
  Indicate whether the statement is true or false

[meganlapinski]

Answer to Question 1

Monetary policy has three goals: price level stability, maximum employment, and moderate long-term interest rates. In the long run, these goals all coincide and are best met by keeping the inflation rate low. In the short run, however, there is a tradeoff: Higher inflation can lead to lower unemployment and hence higher employment. So in the short run, higher employment can be attained but at the cost of higher inflation.

Answer to Question 2

TRUE