20 C E N T E R F O R WO M E N ' S G LO B A L L E A D E R S H I P significant impacts on employment by influencing the overall level of demand and investment in the economy. In the past, central bank policy was often formulated to support a goal of supporting employment. When there is widespread unemployment, resources are wasted and this is a major source of inefficiency and compromises the right to work. Moreover, when employment falls below its potential level, tax revenues will also be lower thus affecting the resources available to a government to realize its human rights obligations. Today central banks are, in most countries, independent government institutions. In addition to influencing interest rates and exchange rates, central banks are typically responsible for many financial regulations. KEY QUESTIONS: ■■ How does the concept of ‘maximum available resources’ apply to central bank policy? ■■ Monetary policy choices are often portrayed as needing to balance a trade-off between employment (i.e., the right to work) and inflation (which may affect earnings and living standards, depending on the context). How do we think about such trade-offs in terms of ‘maximum available resources’? Central Bank Policy and Maximum Available Resources Some economists think that there are trade-offs between price stability and expanding employment and production. Policies that attempt to achieve full employment, it is often argued, lead to inflationary pressures. The extent to which this is true depends on a variety of factors, including the determinants of inflation in a particular country, the wage setting institutions which are in place (e.g., is there centralized bargaining?), and the labor market policies in place (e.g., active labor market policies that better match workers with available opportunities and improvements to labor market institutions that raise productivity can improve employment outcomes without inflationary pressures). In addition, the distribution of the costs of inflation varies from one setting to the next. Some argue that price stability is necessary to prevent the erosion of an adequate standard of living. However, if a low inflation rate means that there are not enough job opportunities, then it does not provide the conditions for an adequate standard of living. Moreover, if earnings rise with the rate of inflation, the impact on living standards will be negligible, relative to cases in which incomes remain relatively fixed. The sources of inflationary pressures must also be taken into account. In many countries, inflation is not primarily caused by central bank policy. In these cases, inflation is not a problem of excessive credit leading to too much demand, but rather a problem of poor infrastructure, low productivity, and/or monopoly power of some businesses which have sufficient market power to raise prices. Increasing