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Questions and Answers
What is the primary goal of a central bank?
What is the role of a central bank as a Lender of Last Resort?
What is the purpose of Open Market Operations?
What is the significance of central bank independence?
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What is the role of a central bank as a Bank Supervisor?
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What is the purpose of setting Reserve Requirements?
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Study Notes
Central Banking
Definition and Role
- A central bank is a national bank that regulates a country's monetary policy and maintains financial stability.
- Its primary goal is to promote economic growth, full employment, and low inflation.
Key Functions
- Monetary Policy: Setting interest rates, regulating money supply, and managing foreign exchange reserves.
- Lender of Last Resort: Providing emergency loans to commercial banks during financial crises.
- Banker to the Government: Managing government accounts, issuing debt, and advising on fiscal policy.
- Bank Supervisor: Overseeing and regulating commercial banks to ensure stability and security.
Tools and Instruments
- Open Market Operations: Buying or selling government securities to increase or decrease money supply.
- Reserve Requirements: Setting minimum reserve ratios for commercial banks to control lending.
- Discount Rate: Setting interest rates for loans to commercial banks.
Independence and Accountability
- Independence: Central banks are typically independent from government interference to ensure objective decision-making.
- Accountability: Central banks are accountable to parliament or congress, and their actions are subject to scrutiny and oversight.
Examples of Central Banks
- Federal Reserve (USA)
- European Central Bank (Eurozone)
- Bank of England (UK)
- People's Bank of China (China)
Importance of Central Banking
- Stabilizing the Economy: Central banks help mitigate economic shocks and maintain financial stability.
- Regulating Inflation: Central banks control inflation by adjusting interest rates and money supply.
- Maintaining Financial Stability: Central banks oversee the banking system to prevent systemic failures.
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Description
This quiz covers the definition and role of central banks, their key functions, and monetary policy. Test your knowledge of central banking and its impact on the economy.
