What is the primary goal of monetary policy?

The primary goal of monetary policy is to control inflation. Central banks, such as the Federal Reserve in the United States, utilize monetary policy to manage the money supply and interest rates, which directly impact inflation levels in the economy. By controlling inflation, central banks aim to stabilize the currency, ensure price stability, and maintain public confidence in the economy.

Controlling inflation is crucial because high inflation can erode purchasing power and create uncertainty in economic planning for individuals and businesses. By focusing on inflation control, monetary policy can provide a stable environment conducive to economic growth and employment, thereby indirectly addressing issues like unemployment.

While reducing unemployment is an important objective, it is often regarded as a secondary goal that monetary policy can influence. Similarly, increasing government spending and balancing the federal budget relate more closely to fiscal policy rather than monetary policy, which focuses on the money supply and interest rates rather than government expenditure or revenue.