What are the principal goals that central banks pursue as they work to carry out monetary...

What are the principal goals that central banks pursue as they work to carry out monetary policy?

Expert Solution

Followings are the principal goals that central banks pursue as they work to carry out monetary policy;

1. Price stability;

Central bank aim to bring price stability in the economy through monetary policy. As we know that price stability is key for economic success that is why this is one of the key goal of the monetary policy.

2. Promote employment;

Central bank also aim to promote employment in the country through its’ monetary policy so that able candidates can get employment.

3. Promote long-term economic growth;

Every central bank want to bring long-term economic growth in the country and with the help of monetary policy central bank can fulfill this goal.

4. Stability in exchange rates;

Volatile exchange rates may negatively affect trade of the country hence central bank can bring stability in the exchange rates with the help of monetary policy.

5. Equilibrium in the balance of payments;

It is necessary that there should be an equilibrium in the balance of payments. If it is not then country may suffer with the deficit of forex reserve that is why central bank try to bring equilibrium in the balance of payments.

6. Moderate long-term interest rates;

Central bank also try to moderate long-term interest rates so that all economic activities can be moved smoothly and desired parties can get loans from the market easily at reasonable rates.

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