What are reasons to tighten monetary policy when supply-side effects have a high weight in an economy?
1 Answer
Jul 4, 2015
monetary policy is used to control the outlook or the position of the economy in either the long run or short run.
Explanation:
If the supply-side effects have a higher weight in an economy, it means that should there be any change in the cost of production whether decrease or increase, the prices of commodities will react to the changes thereof.
the reason of the tightening of monetary policy would be to stabilize the prices, should there be an increase or decrease in the cost of production.
this would make an economy's objective of stabilized prices realized much quicker than to wait for the changes to stabilize.
