Question

The Fed has the twin mandates of achieving both high employment and keeping low inflation. Many central banks only have price stability as the primary goal. Given its control of the money supply, they will have more influence in that area. When the economy experiences stagflation, the policies for lowering unemployment and lowering inflation are contradictory. If this situation were to occur, which one do you think the Fed should focus on first?

Answer 1

Ans) The Fed or government ensures to abide by the policies as per the situation and problems in front of them.

Since we all know, that stagflation is a condition arising out cost push influence with higher levels of unemployment and growing inflation rate in relation to the steadily decreasing of growth.

This is a situation in which the Fed shall look first take into consideration the situation of growing inflation. And by this when the central banks are authorized to control money supply, assuming that they will be holding back or cutting down on supply in the rolling market, it shall ensure that there is a burden on the purchasing power of people. This shall prove to be of utmost importance.

With this, in order to contain unemployment growth is the basic necessity, without which it is not possible to achieve it. So when we think of growth investments become necessary. To deal with such a scenario policies of saving policies of cutting down on the rolling money in the market but on the other hand developmental investments are being made becomes necessary.

A stagnant growth or a declining on with increasing unemployment is a case of such scenario, which can only be dealt with increase in productivity with belief of investors to be kept alive, so that this lays a foundation or paves a way for investments and capital in the right direction.