Goal+-+Stable+Prices


 * Macroeconomic Goal of Stable Prices**

One of the goals of Canada is to have stable prices. Rapidly increasing or decreasing prices tend to be accompanied by other economic problems, such as inflation, deflation, recession, or depression. Stable prices are measured by inflation rates by finding the consumer price index (a measurement to determine the average price of goods and services a family consumes). When we have inflation prices will raise which causes higher unemployment rates. Deflation is when prices start to fall then decreasing unemployment rates. High unemployment leads to deflation and low unemployment leads to inflation. The relationship between the two is what causes business cycles. Therefore, most economies would prefer stable prices. Stabilizing prices is achieved through monetary and fiscal policy. Monetary policy is controlled by the Bank of Canada to implement change in money supply, credit that is available, and interest rates. Fiscal Policy is the government’s involvement in spending and taxation in the economy. Some difficulties that arise from trying to stabilize prices: First, when inflation occurs, interest rates increase causing consumers and businesses to purchase less which then leads to a decrease in demand. Second, the higher the inflation usually means higher unemployment because of higher prices employers can’t afford to have as many employees. This causes increased layoffs and decrease in the amount of people being employed. If inflation stays low and stable individuals are more willing to save and invest without worrying about high inflation and also unemployment rates will decrease so buying power will increase with a more stable income. Sources: Dr. Powers class discussions, Sayre Morris- Principles of Macroeconomics Edition 6, [|__moneywatch.com__] /  [|__The Economy Publications__]  /  [|__Federal Reserve Bank of St. Louis - Regional Economist__]  /  [|__Jan 2008 issue__].