How would you best describe a central bank balance sheet? Select one – the most appropriate answer.

Question

BlackTom AI · Accepted Answer

Question restatement: The task asks to select the most appropriate description of a central bank balance sheet from the given options.
Option 1: 'No correct answer.' This is not accurate because there is a commonly accepted description among the options, so claiming no correct answer is incorrect.
Option 2: 'It’s the record of nation’s assets and liabilities towards foreign entities.' While central bank activities do involve international positions, this description is too narrow and omits domestic components such as currency issuance and domestic instruments, making it incomplete.
Option 3: 'It’s the record of all central bank’s assets.' This describes only assets and neglects the corresponding liabilities, which are essential to a balance sheet. A balance sheet is an assets minus liabilities snapshot, not assets alone.
Option 4: 'It’s the record of a country’s official foreign reserves and its domestic money supply.' This mixes two key elements—foreign reserves and money supply—but money supply is typically a monetary aggregate influenced by the central bank, not directly the balance sheet’s liabilities/ownership structure, and the description omits other assets and liabilities that appear on the balance sheet.
Option 5: 'It’s the record of a country’s official reserves and its money supply.' This aligns with a commonly taught simplification: the balance sheet tracks official foreign reserves (a major asset) and components linked to money issuance and circulation (a representation of liabilities and monetary base). It captures the essential relationship between the central bank’s foreign assets and the monetary base, which is the core framing of the central bank balance sheet in many introductory explanations.
Option 6: 'All answers are correct.' This cannot be true because several of the other statements are incomplete or inaccurate descriptions of a central bank balance sheet, so not all are correct.
In summary, the most precise choice among the options is the fifth one, as it captures the central idea of the balance sheet reflecting official reserves and the monetary base that the central bank controls, while the other options either omit key elements or present an incomplete picture of balance sheet content. The core misconception in the incorrect options often stems from conflating assets alone, or from conflating monetary aggregates with the balance sheet structure, rather than recognizing the balance sheet as a record of assets and liabilities tied to the central bank’s monetary function.

econ_420_120255_249094 Lesson 15 Quiz

How would you best describe a central bank balance sheet? Select one – the most appropriate answer.

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