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What are the advantages and disadvantages of a monetary policy?

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Quick Answer

The advantages of monetary policy include fostering a stable price system, higher employment and promoting economic growth, while the disadvantages are conflicting goals and time delay. Monetary policy has a direct effect on the money supply and the economy's performance.

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Full Answer

Monetary policy helps stabilize prices, which decreases inflation, according to Economics Help. This policy promotes employment and improves economic output. However, monetary policy creates conflicting goals. For example, reducing interest rates to increase the money supply creates higher inflation when the policy lasts for an extended period of time. Monetary policy also has a time delay. Noticing improvements in economic output and employment can take anywhere from three months to two years.

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