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Which of the following statements about central bank structure and independence are true?
A) In recent years there has been a remarkable trend toward increasing independence.
B) In recent years, greater independence has been granted to many central banks, with the
exception of the Bank of England and the Bank of Japan, which are still subject to strict
governmental control.
C) In theory, central banks subject to government control produce better monetary policy, but
experience suggests that more independent central banks have produced superior monetary
policy results.
D) Only A and B of the above are true statements.
Answer: A
Diff: 3 Type: MC Page Ref: 372
Skill: Recall
Objective List: 15.2 Identify the Bank of Canada's functions and degree of independence and
specify the arguments for and against an independent central bank
Why did the Governing Counsel of the ECB decided to operate by consensus?
Answer: Although its members have the legal right to vote, no formal vote is actually taken in
the Governing Counsel and decisions are reached by consensus. One reason for that is because of
worries that the casting of individual votes might lead to heads of National Central Banks
supporting a monetary policy that would be appropriate for their individual countries, but not
necessarily for the countries in the European Monetary Union as a whole.
Diff: 2 Type: SA Page Ref: 370
Skill: Recall
Objective List: 15.2 Identify the Bank of Canada's functions and degree of independence and
specify the arguments for and against an independent central bank
What are the main differences between the European system of Central Banks and the
Federal Reserve System?
Answer: Although their structure is similar some important differences distinguish the two:
a. the budgets of the Federal Reserve Banks are controlled by the Board of Governors, while the
National Central Banks control their own budgets and the budget of the ECB in Frankfurt.
b. the monetary operations of the Eurosystem are conducted by all the National Central Banks in
each country so that monetary operations are not centralized as they are in the Federal Reserve
System.
c. in contrast to the Federal Reserve the ECB is not involved in supervision and regulation of
financial institutions; these tasks are left to the individual countries.
Diff: 3 Type: SA Page Ref: 370
Skill: Recall
Objective List: 15.2 Identify the Bank of Canada's functions and degree of independence and
specify the arguments for and against an independent central bank