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7 - has a high standard deviation or an inflation rate of 7...

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Unit 7 - Central Banks in the World Today 7-1 Unit 7: Central Banks in the World Today Conceptual Problem 1 In 1900, there were 18 central banks in the world; 100 years later, there were 174. Why does nearly every country in the world now have a central bank? Conceptual Problem 2 The power of a central bank is based on its monopoly over the issuance of currency. Economics teaches us that monopolies are bad and competition is good. Would competition among more several central banks be better? Provide arguments both for and against. Conceptual Problem 3 Provide arguments for and against the proposition that a central bank should be allowed to set its own objectives. Conceptual Problem 4 Explain how transparency helps eliminate the problems that are created by central bank independence. Analytical Problem 1 Which do you think would be more harmful to the economy – an inflation rate that averages 5% a year that
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Unformatted text preview: has a high standard deviation or an inflation rate of 7% that has a standard deviation close to zero? Analytical Problem 2 Suppose the central bank in your country has price stability as its primary goal. Faced with a choice of having monetary policy decisions made by a well-qualified individual with an extremely strong dislike of inflation or a committee of equally well-qualified people with a wide-range of views, which choice would you recommend? Analytical Problem 3 “Central banks should remain vague about the relative importance it places on its various objectives. That way, it has the freedom to choose which objective to follow at any point in time.” Assess this statement in light of what you know about good central bank design....
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