The differing goals of the Fed and Congress represent which type of problem?
47) Suppose the grocery store market in Kansas City is perfectly competitive. Then one store buys all
the others and becomes a single-price monopoly. The figure above shows the relevant demand
and cost curves. When the market is perfectly competitive, the price of a pound of steak is
A) $4. B) $20. C) $8. D) $12. E) $2.
12
The differing goals of the Federal Reserve (Fed) and Congress represent a type of problem known as a policy conflict or policy divergence. This occurs when two different entities or institutions involved in setting policies have competing objectives or agendas.
To understand this problem, let's break it down:
1. The Federal Reserve: The Fed is the central bank of the United States and is responsible for formulating and implementing monetary policy. Its primary goals are promoting maximum employment, stabilizing prices (determined by inflation rate), and ensuring moderate long-term interest rates.
2. Congress: Congress is the legislative branch of the U.S. government. Its primary responsibility is to create laws and establish the budget. Congress also influences economic policy through fiscal policy, which involves decisions related to government spending, taxation, and borrowing.
The problem arises because the goals of the Fed and Congress can sometimes be at odds with each other. For example, during periods of economic turbulence, the Fed may prioritize controlling inflation and stabilize prices by raising interest rates. However, Congress may prioritize boosting economic growth and employment, which typically requires lower interest rates and increased government spending.
These conflicting objectives can create tension and challenges when it comes to formulating and implementing effective economic policies. It often requires coordination, negotiation, and compromise between the two entities to address these conflicts and find a balanced approach that takes into account the differing goals and priorities.