What outcome is associated with effective monetary policy?

Effective monetary policy is generally aimed at achieving stable prices and promoting economic growth, which often includes managing unemployment rates. When a central bank conducts successful monetary policy by adjusting interest rates and influencing the money supply, it can stimulate economic activity. This stimulation helps businesses invest and expand, leading to the creation of jobs and, consequently, lower unemployment rates.

For instance, during periods of economic downturn, a central bank might lower interest rates to encourage borrowing and spending. As consumer and business confidence improves, this can lead to increased demand for goods and services, prompting businesses to hire more workers and reduce unemployment.

In contrast, higher inflation rates can occur when monetary policy is overly expansionary or not well-managed, which is not a desirable outcome. Stagnation of economic growth typically results from ineffective monetary policy that fails to stimulate the economy. An increase in trade deficits might also indicate underlying economic issues, such as a lack of competitiveness or weak demand for domestic goods, which effective monetary policy seeks to address rather than exacerbate.