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Title: Why do most economists believe that it is important for a country's central bank to be independent ... Post by: stoneskin21 on Nov 21, 2018 Why do most economists believe that it is important for a country's central bank to be independent of the rest of the country's centrAnswer: nment?
Title: Why do most economists believe that it is important for a country's central bank to be independent ... Post by: mllmmom2000 on Nov 21, 2018 nment?
Answer: The main reason to keep a country's central bank independent of the rest of the government is to avoid inflation. Whenever a government is spending more than it is collecting in taxes, it must borrow the difference by selling bonds. The governments of many developing countries have difficulty finding anyone other than their central bank to buy their bonds. The more bonds the central bank buys, the faster the money supply grows, and the higher the inflation rate will be. Another fear is that if the government controls the central bank, it may use that control to further its political interests. It is difficult in any democratic country for a government to be reelected at a time of high unemployment. If the government controls the central bank, it may be tempted just before an election to increase the money supply and drive down interest rates to increase production and employment. |