What do they mean by economic stability? Economic stability refers to an absence of excessive fluctuation, so an economy with constant output growth and low and stable price inflation is likely to be regarded as stable.
In this way of thinking in particular, price level stability is the key for economic stability.
If the price level is not stable, then the visibility of the relative price changes becomes blurred and businesses cannot ascertain the relative changes in the demand for goods and services and make correct production decisions.
If one apple exchanges for two potatoes, then the price of an apple is two potatoes, or the price of one potato is half an apple.
What matters for economic prosperity is not price stability but rather allowing free relative price fluctuations.
Most economists believe that the key to healthy economic fundamentals is price stability.
It is not surprising that the mandate of the Federal Reserve is to pursue policies that generate price stability.
Monday, May 16, 2022
Federal Reserve Policies Aimed at Creating Price Stability Bring About Economic Instability
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