The goals of monetary policy are price stability, economic growth, full employment, and balance of international payments. Monetary policy is a method formulated and implemented by the financial government to affect the operation of the macro economy through money supply, interest rates or other intermediary goals.
Monetary policy, also known as financial policy, refers to the general term for various guidelines, policies and countermeasures adopted by the central bank to control and adjust money supply and credit in order to accomplish its specific economic goals. The essence of monetary policy is that my country’s supply of money adopts different policy trends such as “tight”, “loose” or “appropriate” according to different stages of economic development.
Objectives of monetary policy
Stable prices
The goal of price stability is the main goal of the central bank’s monetary policy, and the essence of price stability is the stability of the currency value. Price stabilization is a relative concept, which is to control inflation so that general prices do not fluctuate sharply in the short term.
Full employment
The so-called full employment goal is to maintain a strong and stable level. Under the premise of full employment, anyone who is able and willing to work can find a suitable job at any time under more reasonable conditions.
Full employment is the level of utilization of all available resources. However, it is very difficult to assess the utilization level of various economic resources. Generally, the employment level of the labor force is used as the standard, that is, the unemployment rate index is used to consider the employment level of the labor force.
Economic Growth
The so-called economic growth means that the growth of the total economic volume must maintain a reasonable and strong rate. Countries generally use the GDP growth rate as the indicator for economic growth, that is, the specific GDP growth rate after deducting the price increase rate from the per capita nominal GDP growth rate. The government generally sets an indicator for the specific GNP growth rate during the planning period, which is indicated by a percentage, and the central bank takes this as the goal of monetary policy.
Balance the balance of payments:
According to the definition of the International Monetary Fund, the balance of payments is a statistical table of a country’s foreign trade transactions in a certain period, which shows:
1. The purchase and sale of goods, services and benefits between an economy and the rest of the world;
2. Changes in the economy’s monetary gold, special drawing rights and its ownership of claims and debts to the rest of the world;
3. In the accounting sense, gratuitous transfers and corresponding items required to equalize any accounts of the above-mentioned sales and changes that do not cancel each other out.
The relationship between monetary policy objectives
- The contradiction between stable prices and full employment
May lead to stable prices with strong unemployment or full employment with strong inflation.
2. The contradiction between price stability and economic growth
It may make the economy with sluggish economic growth stable or the economy with strong inflation to thrive.
3. The contradiction between stable prices and the balance of payments
It may lead to a balance of payments deficit under domestic inflation (relative price stability in other countries) or a balance of payments surplus under domestic price stability (relative inflation in other countries).
