The apparent result of central bank independence has been better performing economies. Why do you think it took so long for many countries to create independent central banks?
What will be an ideal response?
One reason is that central banks were created by people who had power and these people were not likely to give up this power easily, especially the power to create money. If we focus on the United States as an example, it may be that Congress realized that being a body of elected officials, they would always have a difficult time using policy in the correct way (moral hazard) so it would be better to give significant policymaking power to an independent group that did not have to worry about being re-elected. It may be that it takes experience with high inflation for countries to come to this realization.
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If the price level in the current period is lower than what buyers and sellers anticipated,
a. profit margins will be unattractive, and firms will expand output. b. profit margins will be unattractive, and firms will reduce output. c. profit margins will be attractive, and firms will expand output. d. profit margins will be attractive, and firms will reduce output.
If the MPC is 0.80 and the government increases transfer payments by $45 billion, then the initial fiscal stimulus will equal
A. $36 billion. B. $9 billion. C. $225 billion. D. $56.25 billion.
Suppose the MPC in the economy in Figure 10.2 equals 0.75 and the shift from AD0 to AD1 was caused by a decrease in investment of $50 billion. What will happen to the equilibrium level of real output as a result of the initial $50 billion decrease?
A. It will fall by exactly $200 billion. B. It will fall by more than $200 billion. C. It will fall by less than $200 billion. D. It will fall by less than $67 billion.
In the traditional Keynesian model, an increase in government spending leads to all of the following EXCEPT
A. higher real GDP. B. an increase in consumption. C. an increase in aggregate demand. D. an increase in the price level.