18 Questions
What is the purpose of inflation targeting in monetary policy?
To achieve a medium-term inflation target
What are the policy tools of central banks?
Open market operations, discount rate, reserve requirements
How does high inflation impact economic growth?
Creates uncertainty and hampers economic growth
Define open market operations and its impact on the money supply.
Buying and selling of government securities to expand or contract the money supply
What is the significance of transparency in public communication of monetary policy objectives?
Increasing transparency helps in understanding central bank objectives
Why is accountability important in the context of missed inflation targets?
To hold central banks responsible for achieving their inflation target
What is the meaning of independency when referring to the Central Bank?
Independency refers to how free the Central Bank is from political pressures in pursuing its goals.
Describe the concept of Instrument Independence in relation to the Central Bank.
Instrument Independence is the ability of the central bank to set monetary policy instruments.
How can the Central Bank's independence impact its ability to pursue policies?
The Central Bank's independence allows it to pursue policies that may be politically unpopular but are in the best interest of the public.
Explain the concept of Goal Independence as it relates to the Central Bank.
Goal Independence is the ability of the central bank to set the goals of monetary policy.
What role does Presidential appointment play in shaping the direction of the Central Bank?
Presidential appointment clearly sets the direction of the central bank.
How do matched sale-purchase transactions work in the context of the Central Bank?
Matched sale-purchase transactions involve the Central Bank selling securities but agreeing to buy them back.
What are the general functions of financial institutions related to monetary policy?
Issue new currency, remove damaged currency, conduct research, act as lender of last resort
What are the other goals of monetary policy besides price stability?
Employment, economic growth, stability of financial markets, interest-rate stability, foreign exchange market stability
How does expansionary monetary policy affect unemployment and interest rates?
It leads to lower unemployment and lower interest rates initially.
Explain the short-run trade-offs associated with interest rates and inflation.
Increasing interest rates to prevent inflation can lead to short-term increase in unemployment.
What is the relationship between real interest rate, nominal interest rate, and inflation rate?
ir = i - πe
How does price stability relate to the long-run and short-run goals of monetary policy?
Price stability is not inconsistent with long-run goals but involves short-run trade-offs like increased interest rates and temporary unemployment.
Learn about inflation targeting, medium-term inflation target announcement, commitment to monetary policy, and the social and economic costs of inflation. This quiz covers topics like the inclusion of variables in monetary policy decisions, increasing transparency through public communication of objectives, and accountability for missed targets.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
