Question

Discuss any five areas of conflicts in the objectives of monetary policy

Answer 1

There are several conflicts occurred in between the objectives of monetary policy. They are;

1) Exchange rate and price stability: These two measures cannot be achieved simultaneously. The price stability can only be achieved through avoiding the concept of exchange rate. The exchange rate will be affected by several other variables.

2) Full employment and low inflation: Inflation can be controlled and maintained through proper monetary policy. The monetary authority tried to reduce the inflation through reducing the money supply in the economy. This lower money supply will affect the wage rate and the minimum wage rate comes down. This will increase the unemployment rate.

3) Stability of price and economic growth: The stable price will not show the growth level of an economy. The economic growth attained only through flexibility of prices.

4) Economic growth and balance of payment: Most of the economies tried to increase the export level to attain higher level of economic growth. This higher export will make an unbalance in the balance of payment records.

5) Flexibility and equity: Both equity and flexibility cannot be managed. The economy tried to attain flexibility of the economy by the influence of globalisation. This will lead to widen distribution of income and create inequality in the economy.