Reference no: EM133325720

Case: Firstly, the merits and shortcomings of addressing a single objective will be analyzed. Generally speaking, it is easier for central banks to focus on one objective. Under such context, they can concentrate resources on attaining it by devising a series of consistent and coherent policies and measures. During the process, they need not pay much attention to other economic or financial indexes. Taking the inflation rate as an example, central banks can properly adjust the quantity of currency supply and demand for sake of either stimulating or suppressing social demands and consumption. Since the objective is single, central banks will be more likely to devise and implement suitable, acceptable and feasible monetary policies. However, the economic and financial markets of a country are affected by multiple factors (Cecchettiet al, 2020). Central banks and governments are highly supposed to accurately identify and properly respond to these relevant factors in order to protect a healthy economic condition. Here, a typical problem of addressing a single objective was to ignore other related factors, owing to which central banks may run high risks of failing to realize their policy-making objectives.

Meanwhile, it is more advisable for central banks to focus on multiple objectives. In the globalized environment, inflation, unemployment rate, economic growth rate and international balance of payment can significantly affect each other. Cases in point, high unemployment rate would decrease economic growth rate, household incomes and individual average purchasing powers. When people are not affordable for products, they would inevitably cut down expenses, which is also a measure for them to cope with the adverse impacts of inflation. If domestic consumption is constrained, nations are less likely to pay for debts, owing to which their abilities to balance international payment will be undermined as well. In light of the close interaction between these variables, central banks had better come up with measures for coordinating these objectives. Otherwise, their effectiveness of maintaining financial stability or promoting economic development will be adversely impacted. As for this regard, central banks and nations are highly advisable to stay up to date with market trends, economic conditions and international market situations. An in-depth understanding of these factors will assist central banks to make more informed decisions and monetary policies for stabilizing goods prices and safeguarding healthy economic development. From my perspective, central banks should effectively and timely address multiple objectives for protecting economic growth and core interests of their people.

Question: After reading the opinion above, what is your response? What may be some risks or drawbacks? Please be detailed in your opinion.