Which of the Following Statements Concerning an Independent Central Bank

question 27

Multiple Choice

Which of the following statements concerning an independent central bank are true?

• A) Politicians may prefer an independent central bank, as it can be used as a "whipping boy" or "scapegoat" for poor economic performance.
• B) Politicians in a democratic society may be shortsighted because of their desire to win reelection; thus, the political process may generate a political business cycle, in which just before an election contractionary policies are pursued to raise unemployment and interest rates.
• C) Putting the Bank of Canada under control of the government may place too much pressure on the Bank of Canada to finance federal budget deficits, thereby imparting an inflationary bias to monetary policy.
• D) A and C only

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Definitions:

Average Variable Cost

The total variable costs (costs that vary with production volume) divided by the quantity of output produced, representing the variable cost per unit.

Net Present Value (NPV)

The difference between the present value of cash inflows and the present value of cash outflows over a period of time. It's used to evaluate the profitability of an investment or project.

Capital Investment Funds

Financial resources that are used by a company to purchase physical assets like property, industrial buildings, or equipment.

Capital Rationing

The situation that exists if a firm has positive Net Present Value projects but cannot find the necessary financing.