Explain two concepts of central bank independence. Is the Fed politically independent? Why do economists think central bank independence is important?
What will be an ideal response?
Instrument independence is the ability of the central bank to set its instruments, and goal independence is the ability of a central bank to set its goals. The Fed enjoys both types of independence. The Fed is largely independent of political pressure due to its earnings and the conditions of appointment of the Board of Governors and its chairman. However, some political pressure can be applied through the threat or enactment of legislation affecting the Fed. Independence is important because there is some evidence that independent central banks pursue lower rates of inflation without harming overall economic performance.
You might also like to view...
If the coefficient of elasticity is 25,
A) demand is 25%. B) demand is about to change for the better. C) demand is very elastic. D) demand is very inelastic. E) the law of demand hardly applies.
The principal way in which inflation imposes costs upon the members of a society is by
A) destroying the incentive to consume. B) increasing the cost of planning correctly. C) lowering wages relative to prices. D) making goods more scarce. E) raising the percentage of the population below the official poverty line.