Final answer:
Central bankers should focus on sustainable and long-term economic growth rather than just high short-term growth rates, as aiming for a constant high short-term growth could result in economic instability and inflation based on the principles of neoclassical economics.
Step-by-step explanation:
Should Central Bankers Aim for the Highest Short-term Growth Rate?
When considering the goals of central bankers, such as economic growth, low unemployment, and low inflation, the focus should not solely be on achieving the highest short-term growth rate. Although short-term growth can be beneficial, it needs to be sustainable and not at the expense of economic stability. The neoclassical economic model suggests that a vertical aggregate supply curve indicates an economy's potential GDP. In this model, an expansionary monetary policy can lead to inflation without altering GDP or unemployment in the long run. Therefore, central bankers generally aim for long-term growth rather than short-term boosts that might cause excess inflation and instability.
Historically, economists like Milton Friedman argued that a steady monetary policy, with consistent growth in the money supply that mirrors real economic growth, yields more stable results. Such a policy can avoid the possible adverse effects of an overly reactive central banking system, promoting a healthier economy with less uncertainty.