Question

What are some of the problems of using monetary policy to achieve our economic goals of steady growth in real GDP, low inflation, and full employment?

Answer 1

Monetary policy is a kind of macro economic policy. The implementation of macro economic policy can be done by using tools like fiscal and monetary policy. Both are mainly used to improve the economic condition by achieving full employment.

Monetary policy is a kind of policy which mainly used for managing the money supply activities as well as interest rates etc and it is mainly used by the central bank , currency boards etc.

Some of the problems of using monetary policy are the following :

• Economic growth is not fully satisfied : while using monetary policy the economic growth is not guaranteed. Sometimes high economic growth will be there as well as some times economic growth will not be there .Here the results of economic growth are not guraenteed
• Imports are badly effected : while using monetary policy it effect the imports very badly. The imports are badly effected because the value of national currency reduced to a great extend .
• Hyperinflation may occur : inflation is a condition where the price of good and service increases. Hyperinflation is a rapid increase in the price of goods and services.