Financial Institutions and Markets: Inflation Targeting and Costs of Inflation
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Questions and Answers

Which of the following is a key feature of inflation targeting as a monetary policy framework?

  • Committing to achieving a medium-term inflation target (correct)
  • Relying solely on interest rates to make policy decisions
  • Announcing a short-term inflation target only
  • Excluding other economic variables from policy considerations

    • How does inflation targeting aim to increase transparency in central bank policy?

  • By avoiding any public communication about policy
  • By keeping policy decisions secret from the public
  • By regularly communicating the central bank's policy objectives (correct)
  • By making policy decisions based on confidential information

    • What is the primary focus of central banks under an inflation targeting framework?

  • Achieving full employment
  • Stabilizing exchange rates
  • Maintaining price stability (correct)
  • Maximizing economic growth

    • Which of the following is a policy tool used by central banks to control the money supply?

    <p>Conducting open market operations</p> Signup and view all the answers

    How does high inflation affect economic growth according to the passage?

    <p>High inflation creates uncertainty and hampers economic growth</p> Signup and view all the answers

    Which central bank policy tool is used to increase the cost of borrowing and reduce the money supply?

    <p>Selling government securities</p> Signup and view all the answers

    What is the primary function of a central bank?

    <p>To manage the money supply and implement monetary policy</p> Signup and view all the answers

    Which of the following is NOT a common tool used by central banks to implement monetary policy?

    <p>Regulating the stock market</p> Signup and view all the answers

    What is the primary goal of monetary policy according to the text?

    <p>Maintaining price stability</p> Signup and view all the answers

    Why is central bank independence considered important for effective monetary policy?

    <p>All of the above</p> Signup and view all the answers

    What is the primary goal of most central banks' monetary policy?

    <p>Maintaining price stability (low inflation)</p> Signup and view all the answers

    What is the relationship between expansionary monetary policy and interest rates according to the text?

    <p>Expansionary policy leads to lower interest rates and higher inflation</p> Signup and view all the answers

    Which of the following is NOT a common tool used by central banks to control inflation?

    <p>Implementing wage and price controls</p> Signup and view all the answers

    What is the role of the central bank as a 'lender of last resort' according to the text?

    <p>To loans money to banks to prevent banking panics</p> Signup and view all the answers

    What is one of the other goals of monetary policy besides price stability?

    <p>Maintaining stability in the foreign exchange market</p> Signup and view all the answers

    What is the short-run trade-off described in the text between price stability and other goals of monetary policy?

    <p>Increasing interest rates helps prevent inflation but increases unemployment in the short-run</p> Signup and view all the answers

    What is one of the functions of the Banking Regulation and Supervision Agency in Turkey?

    <p>Evaluating bank mergers and expansions</p> Signup and view all the answers

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