Is Inflation one most important macroeconomic objective?

As Inflation rates are extremely important within an economy, should the government concentrate just to increase or reduce inflation rates?

What happens in the economy regarding employment, investment, exchange rates, exports and imports when inflation levels are stable and near the target rate?

Is Inflation one most important macroeconomic objective?

It depends on who you ask.

Most people are relatively unaffected whether inflation is 3% or 4%, as long as their wages keep up.

However, if the unemployment rate goes up 1%, individuals start to feel the crunch.

Is Inflation one most important macroeconomic objective?

Inflation rates are usually dependent on the current status of the economy. The answer to your question is dependent on the current economy because you have to balance it out. To much of one is bad as to much of the other.

Is Inflation one most important macroeconomic objective?

Govt. has very little power or capability to achieve multiple macro-econimic objectives.

Low and stable inflation is obviously a desirable economic objective. However, govt. or the central banking monetary authority can only anticipate gathering inflationary presures and reduce its own contribution to inflationary pressures. The govts. contribution to price increases/ inflation comes through running high levels of budget deficits financed by printing money, high levels of indirect taxes, control over private enterprise in investment in capacity creation, exports and imports, and wastage of national resources by keeping alive inefficient public sector activities. But seldom govt.s would reduce their exploitation of the citizens through the above measures. Rather they would leave it to the central bank to raise cash reserve ratio and raise the rates of interest so that the private sector finds its costlier to borrow and banks find lower resources to lend to the private sector. These measures generally reduce investment in fresh capacity thus reducing potential supply in the future period thus paving the way for future inflation. The only reason why inflation do come down, and only in some cases after such anti-inflationary measures are taken, is just the private sector continues to take risks more than they would normally do and find new innovative financing schemes to overcome the obstacles created by the govt. and the central bank. However, the common people are hit harder if the govt./ monetary authority takes anti-inflationary measures that are directed at contrlling private sector investment and production activity: the only consolation is that the paper tiger controllers of inflation show that they are concerned with people suffering from high inflation. You are right govts. should concentrate on controlling inflation only, but they should do that by reducing taxes, reducing govt expenditure, removing controls on exports and imports, abandoning down wasteful public sector operations, selling inefficient public sector enterprises to the private sector and even to the foreigner as well as run budget surpluses.

If inflation rate is low and stable, uncertainties and market distortions are lower. This means exports, imports, investments and exchange rates do not become volatile. High and unstable inflation, creates greater uncertainty in the minds of investors, exporters, importers and traders in currencies. With all these remaining stable, employment also remains relatively stable. But when Govt. takes anti-inflationary policies of the type they normally do, investment and employment are adversely affected, exports and imports may go down overall except to the extent govt. allows extra imports to increase supply within the economy. If however, the govts. take antiinflationary measures of the type they normally are reluctant to do, inflation control becomes more effective and the adverse effect is limited and only for a short while.

Most economists and politicians will not agree with my opinion.