finhw15 - (c) Central bank policy makers are appointed for...

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Chapter Lessons (15) 4. Central Banks Should be allowed to set its own objectives b/c: - they need to be independent of political pressure. Central Banks Should not be allowed to set its own objectives - inconsistent with representative democracy. There is no checks and balances on what the central banks are doing - secrecy 13. (a) Central bank policy decisions are irreversible - apart of a central bank being independent. Decisions cannot be dictated by the government officials (b) the central bank finances itself from the earning on its assets and turns the balance over to the government - Monetary policymakers should be free to control their own budgets. If politicians can starve the central bank of funding then they can control the bank's decisions
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Unformatted text preview: (c) Central bank policy makers are appointed for 14-year terms-- central bankers operate under a long term horizon and should not have any ties to a certain political party. 15. The central banks might have increased its interest rates because the interest rates may have been too low which causes high inflation. Low and stable inflation is the primary objective of the monetary policy of central banks so they chose to focus more on that aspect than stable interest and exchange rates. 18. Why might it be tempting for the government to sell additional bonds to the central bank in a policy move that it knows would be inflationary? The government looking at the short term so sell the bonds so they will have money now...
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This note was uploaded on 01/06/2012 for the course FIN 355 taught by Professor Phillips,s during the Fall '08 term at Syracuse.

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