What is the most important goal of monetary policy and why?
Of the six basic goals of monetary policy; high employment, economic growth, price stability, interest-rate stability, stability of financial markets and stability in foreign exchange markets, which do feel is more important and why? Can you give me any examples?
Price Stability (Low Inflation)
If wages go up then you cannot hire too many workers.
Example:
If today Congress passed a new Bill to lower the Minimum Wage to $3.15 then most companies could hire almost twice the number of workers they now have and that would reduce unemployent.
That law is never going to be proposed by any Congressman because it would not be popular and that would cost him the election. Despite the fact, low unemployment is good for everyone it also causes less Crime and more Profits.
On the other hand, if the minimum wage is changed to $10.30 per hour then most companies would have to fire half the employees to make the same profits and that would increase unemployment and crime.
If a Congressman proposes that law it will be very popular and it will probably will give him an election.
Yes, the more damage you make the more popular you are.
High wages cause inflation.
In the United States of America the wages are the highest in the world and that is eventually is going to cost millions of jobs.
Since 1994 companies have been moving out of the United States of America to Mexico, China and India.
That trend cannot be reversed unless you bring the mexicans to the United States of America (As opposed to send the factories to Mexico)
In a company moves to Mexico not only employment is reduced but also taxes and if you are unemployed you cannot spend too much money.
In fact, Mexico is now the 12th richest country in the World because of this.