The Current Economic Literature - 806 Words

The current economic literature suggests different answers to this complex question. In this paper, I argue that the answer is â€Å"no†. To arrive at this conclusion, I will first discuss the importance of price stability, and secondly, the costs and benefits of the suggested changes. The Importance of Price Stability The Fed’s dual mandate is promoting maximum employment and price stability. These objectives are not always complementary, and hence the Federal Open Market Committee (FOMC) declared a balanced approach when promoting them. Numerous economists emphasize the importance of price stability. They argue that it eliminates potential drag on resources’ efficient allocation, and thus promotes economic growth. It also promotes financial stability since unstable price levels lead to bad forecasts of investments’ real returns and, hence, to unprofitable borrowing and lending decisions. Additionally, Business decisions based on expectations of continuing inflation often turn out badly when inflation drops, causing rising default rates and business deficiencies. Nevertheless, the 2008 crisis has challenged the belief that price stability guarantees financial stability and economic growth. As the International Monetary Fund concludes, â€Å"To ensure macroeconomic stability, policy has to include financial stability as an additional objective.† Others argue that price stability should be replaced with a regime of â€Å"targeting the forecast,† or targeting nominal GDP growth.Show MoreRelatedThe Effect of Cultural and Historical Situations on American Literature 1173 Words   |  5 PagesProfessor Brattoli †American literature is almost always tied to historical and social events of the era in which it was written.† There is a connection between literary works from different time periods. 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