Question

What are the implications of a Full Employment in the US in terms of likely monetary policy decisions.

Answer 1

As we know that full employment refers to the condition in the economy where every capable labor gets employment. In other words we can say that when all available labor resources are being used in the most possible efficient way then we can say that there is full employment in the economy.

There are some implications with reference to monetary policy for getting full employment in the economy. As we know that main motive of monetary policy is to maintain a proper flow of money. With the help monetary policy central bank will control flow of money and level of inflation and we also know that for getting full employment in the economy flow of money should be increased so that level of output will be higher and employment will also increase. But due to higher flow of money and higher business activities there will be higher level of inflation so there will be a contradiction between full employment and inflation level.

Hence there is higher implications for maintaining a proper flow of money with the help of monetary policy because higher flow of money will lead to higher inflation hence as the level of employment will increase then inflation will also increase thus managing this situation is always a critical condition.