Research Indicates That the More Independent the Central Bank

question 34

Multiple Choice

Research indicates that the more independent the central bank,

• A)the smaller the budget deficit.
• B)the higher the nominal interest rate.
• C)the lower the rate of inflation.
• D)the larger the time inconsistency problem in making policy.
• E) the greater the likelihood of a "war of attrition" over policy.

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Definitions:

Output

The amount of goods or services produced by a company, industry, or economy.

Function

A relation between a set of inputs and a set of permissible outputs, typically defined by a rule that every input is related to exactly one output.

Production Function

A mathematical model that describes the relationship between inputs used in production and the output generated from those inputs.

Marginal Product

The increase in output that results from a one-unit increase in the input of a particular resource, holding all other inputs constant.