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In: Economics

Should monetary policy be limited to regulating the price level? Give reasons for your answer.

Should monetary policy be limited to regulating the price level? Give reasons for your answer.

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Expert Solution

  • Monetary policy refers to the Economic policies aimed at regulating the price level or maintaining the price stability in the Economy by regulating the money supply and the interest rates.
  • According to me, the monetary policy should be limited to regulating the price level.
  • This is because, the monetary policy tools are too general and cannot be used to address any specific problems like the fiscal policy tools. The policy results can only be felt by the whole economy rather than a specific region or a state.
  • These policy tools are observed to be effective only in short run, because in long run, it does not show any significant affect on the economy rather it can only increase the general price level in long run.
  • They show significant lags in spreading its effect even when it is implemented faster. Their effects are felt by the economy only after few months or years.
  • Hence, monetary policy should be limited to regulating the price level.

Rahul Sunny answered 1 year ago
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