Which of the Following Actions Should the Central Bank Take

The central bank which is responsible for managing a countrys monetary affairs determines the level of short-term interest rates thereby profoundly affecting financial markets wealth output employment and prices. Therefore whenever the central bank lowers interest rates the money supply in the economy increases.

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If Eurekalands Central Bank wants to prevent inflation from becoming a major problem which of the following actions should it take.

. Deposit of currency in commercial banks by the public. Thats called expansionary monetary policy. If the interest rate on short-term government bonds declined as a result of open market operations by a central bank the central bank must have.

Its central bank has cut interest rates by three and a half percentage points. Monetary policy is tricky. Russia The government has given 100bn in extra liquidity.

The senior management and the Board of Directors should be notified and kept apprised of the progress of the investigation. Role of Central Bank 2. Borrowing by the government from the Central Bank.

That is it sells pounds and buys dollars on the private Forex. After the deposit outflow the bank will have a reserve shortfall of 15 million. Increase taxes reducing costs and causing prices to fall Buy government bonds reducing money supply increasing interest rates and slowing aggregate demand.

This entails managing the quantity of money in circulation through the buying and selling of various financial instruments such as treasury bills repurchase agreements or repos company bonds or foreign currencies in exchange for. Increase the money supply C. A It should reduce the money supply to push interest rates higher.

Many central banks have since adopted explicit inflation targets. Which of the following measures would result in an increase in the money supply in the economy. Which of the following Actions should the ccntril bank take if monetary authorities want to reduce the supply of money to slow the rate of inflation.

Contrast the actions a central bank should take when an economy is in recession with production substantially below. In the US for example the Federal Open Market Committee targets the federal funds rate. Central bank would immediately satisfy the excess demand by supplying additional pounds to the Forex market.

To work to achieve low unemployment and to maintain stable prices throughout the economyDuring a recession unemployment rises and. Lowering rates stimulates growth preventing or shortening a recession. Policy Objectives of the Central Bank 3.

Role of Central Bank. Which of the following actions can the Federal Reserve take to reduce inflationary pressures in the United States. Increase government spending B.

C It should reduce the money supply to push interest rates lower. Increase interest rates D. Which of the following actions should the central bank take if monetary from FIN 327 at San Diego State University.

3 Central banks are uniquely equipped to carry out this mission. If the central bank raises the margin to 25 per cent the bank can lend only Rs 750 against a security of Rs 10. These actions are referred to as monetary policy.

The bank manager could try to borrow in the Federal Funds market take out a discount loan from the Federal Reserve sell 15 million of the securities the bank owns sell off 15 million of the loans the bank owns or lastly call-in 15 million of loans. To move inflation toward the target central banks typically rely on an overnight nominal interest rate. When a central bank conducts open-market bond sales the money supply interest rate and aggregate demand will change in which of the following ways in the short run.

In the period following the 2008 economic crisis the European Central Bank kept interest rates either at zero or below zero for too long and. The bank should consider retaining experienced outside counsel to assist the bank in responding to the investigation. Sale of government securities to the public by the Central Bank.

11 The European Central Bank lowered rates so far that they became negative. Subsequently the banks lower the interest rates they charge their consumers for loans. What Actions that a commercial bank could take to prevent closure by central bank.

Reduce the reserve requirements. For example if the central bank fixes a 10 per cent margin on the value of a security worth Rs 10 then the commercial bank can lend only Rs 900 to the holder of the security and keep Rs 100 with it. Commercial banks are obliged to.

B It should increase the money supply to push interest rates higher. D It should increase the money supply to push. Lend early and freely to solvent institutions at a penalty rate and against good collateral.

To maintain a credible fixed exchange rate the US. Conventional central banking practice is to increase the nominal interest rate target when. In this way the equilibrium exchange rate is automatically maintained at the fixed level.

Sterilized intervention involves two actions from the central bank in order to influence the exchange rate and at the same time leave the monetary base unchanged. These actions also generally adhered to Walter Bagehots dictum a time-honored central banking principle for countering a financial panic. Central bank the Federal Reserve has a dual mandate.

Contrast the actions a central bank should take when an economy is in recession with production substantially below potential GDP and those needed when an economy is producing in overdrive above potential GDP. By decreasing the short-term interest rates the central bank reduces the cost of borrowing to commercial banks. Purchase of government securities from the public by the Central Bank.

It can take over a year for it to have its full effects on the economy. A central bank affects the monetary base through open market operations if its country has a well developed market for its government bonds. This would cause a shift of the pound supply curve from S to S.

They regularly lend to commercial banks against a wide variety of. The bank should immediately go to the media and explain why it has done nothing wrong. Autonomy of the Central Bank.

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