Part 1Which of the following statements about central bank structure and independence is true?Part 2
A. 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. B. 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. C. In recent years, there has been a remarkable trend toward increasing independence. D. Only A and C are correct. E. All of the above are correct.

Question

Part 1Which of the following statements about central bank structure and independence is​ true?Part 2
A. 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. B. 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. C. In recent​ years, there has been a remarkable trend toward increasing independence. D. Only A and C are correct. E. All of the above are correct.

BlackTom AI · Accepted Answer

Here's the question restated for clarity: Part 1 Which of the following statements about central bank structure and independence is true? Part 2
A. 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.
B. 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.
C. In recent years, there has been a remarkable trend toward increasing independence.
D. Only A and C are correct.
E. All of the above are correct.

Options analysis:
Option A: This statement asserts a blanket exception for the Bank of England and the Bank of Japan, claiming they remain under strict governmental control while others gained independence. In reality, both the Bank of England and the Bank of Japan have moved toward greater independence over time, but to claim they are still under strict control is not accurate and overgeneralizes the current situation. The option also ignores the broader global trend toward independence seen in many other central banks, making it misleading.
Option B: This option contrasts theory and practice, suggesting that while theory may favor government-controlled central banks, empirical experience tends to show that more independent central banks deliver better monetary policy results. This aligns with a substantial body of literature in monetary economics, which often finds that greater independence reduces inflation bias and improves policy credibility and performance, even if there are caveats about optimal accountability and political constraints. The reasoning here captures the nuanced evidence from theoretical and empirical work, presenting a balanced view.
Option C: This statement asserts a remarkable trend toward increasing independence in recent years. Compared with earlier periods, there has indeed been a pronounced move toward greater independence in many central banks through reforms, statutes, and clearer inflation targets, although the pace and extent vary by country and over time. The core idea—that independence has been trending upward—is broadly supported by empirical observations, though it may be described with varying intensity depending on the dataset used.
Option D: This option posits that only A and C are correct. Given that A has inaccuracies about the status of the Bank of England and Bank of Japan and that B presents a well-supported claim about theory vs. empirical results, combining A with C does not yield a fully correct statement. The inconsistency in A undermines this combined claim, making D unlikely to be fully true.
Option E: This option claims all of the above are correct. Since A contains at least one factual mischaracterization and B and C offer plausible, well-supported positions, asserting that all statements are correct would be inaccurate. The presence of a flawed statement in A prevents E from being true.

In summary, when evaluating the set, option B stands out as the statement that accurately reflects the literature: theoretical concerns about government control versus independence exist, but empirical results often favor more independent central banks for monetary policy performance. The other choices contain factual overstatements or oversimplifications (A), or overgeneralizations about trends (D and E) that are not fully supported by the evidence.

Homework:Chapter 16 Homework

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