Question

Why is an independent central bank more likely to put emphasis on price stability rather than on keeping unemployment low, compared with a central bank that is not independent?

Answer 1

An independent central bank focuses upon the monetary policies that gives stable growth to the economy in the long run. It is only achieved when there is a price stability and moderate inflation to give a regulated growth. It makes the more disposable income to be spent and aggregate demand increases. It creates incentives for the firms to increase the supply and new jobs are created. So, with the objective of the price stability, other objectives are also achieved when the central bank is independent.
If the central bank is not independent and work under the agenda of the government, then the bank will only use expansionary monetary policy that will encourage the aggregate demand and subsequent aggregate supply to increase. It will cause the increase in new jobs, but at the cost of higher inflation rate that will reduce the purchasing power. But, the government boasts in the public that they have created jobs and unemployment rates in their tenure has come down. But, in reality the real value of money has also come down due to the poor policy planning. So, there is a difference between the approach of the central bank when it is independent or it is tied to the government agenda.