Q. 3 Many countries have central bank... [FREE SOLUTION]

Chapter 17: Q. 3 (page 470)

Many countries have central banks that are responsible for their nation鈥檚 monetary policy. Go to http:// www.bis.org/cbanks.htm, and select one of the central banks (for example, the central bank of Norway). Review that bank鈥檚 website to determine its policies regarding the application of monetary policy. How does this bank鈥檚 policies compare to those of the U.S. central bank?

Short Answer

Expert verified

Over the last few years, the Reserve Bank of India (RBI) has maintained extremely tight economic coverage. Interest rates have gradually risen in order to combat inflation, and have most recently effectively prevented rates from rising further.

Step by step solution

Concept Introduction

Monetary policy is used by the central bank to control the liquidity of money in the economy in order to stabilise the economy. This is accomplished by controlling interest rates and the money supply. Monetary policy objectives include high employment and output stability, economic growth, financial market stability, interest rate stability, and currency market stability.

Explanation

For the past few years, the Fed has maintained a very loose monetary policy. The Fed's monetary policy includes near-zero interest rates, two rounds of quantitative easing, yield curve operations, and the promise of further easing in the future.

The Reserve Bank of India (RBI) has maintained a very tight monetary policy over the last two years. Interest rates have steadily risen in order to combat inflation, and only recently have rates stopped rising. The most recent inflation data has been lower than in the past, but it remains too high.