FinancialQuotient

What is a Goldilocks economy?

WHAT DOES IT MEAN?

The phrase "Goldilocks economy" originated with Mr David Shulman of Salomon Brothers. It refers to an economy that, like the porridge from the children's story, is neither too hot nor too cold, but "just right". It is the goal of many policymakers to have economic growth that is neither too high nor too low.

WHY IS IT IMPORTANT?

The problems of inadequate growth are obvious. Lack of growth often leads to unemployment, and stagnant or falling wages. A high rate of growth may be unsustainable, and may bring inflation, or a sharp slowdown when the rapid expansion is no longer sustainable.

Policymakers' tools to maintain "just right" levels of growth include fiscal policy (spending) and monetary policy (control over interest rates and money supply).

For example, when growth is too slow, the government can start new infrastructure projects to boost employment, or lower interest rates to encourage private-sector spending or investment. When growth becomes unsustainably high, government spending can be cut back, or interest rates raised to slow down consumer spending or corporate investment.

Other tools are also available, such as tax incentives to encourage (or discourage) certain types of spending or investment. If successful, these tools can speed up a slowing economy, or bring about the "soft landing" of an overheating economy, maintaining "just right" growth.

IF YOU WANT TO USE THE TERM, JUST SAY:

"Due to a Goldilocks economy, the stock market boomed at a steady pace for job creation, but not too hasty to result in runaway inflation."

•The writer is associate professor and head of the department of finance at National University of Singapore Business School.

A version of this article appeared in the print edition of The Sunday Times on April 09, 2017, with the headline 'What is a Goldilocks economy?'. Print Edition | Subscribe