Question : 13.9   Explaining Central Bank Behavior 1) The theory of bureaucratic : 1373760

13.9   Explaining Central Bank Behavior

1) The theory of bureaucratic behavior suggests that the objective of a bureaucracy is to maximize

A) the public’s welfare.

B) profits.

C) its own welfare.

D) conflict with the executive and legislative branches of government.

2) The theory of bureaucratic behavior when applied to the Fed helps to explain why the Fed

A) is supportive of congressional attempts to limit the central bank’s autonomy.

B) is so secretive about the conduct of future monetary policy.

C) sought less control over banks in the 1980s.

D) is willing to take on powerful groups that may threaten its autonomy.

3) Compared to the Federal Reserve, the European Central Bank is less transparent because

A) the European Central Bank doesn’t publicly release its inflation rate target for the European Monetary Union while the Federal Reserve publicly releases its inflation rate target for the United States.

B) the Federal Reserve holds a press conference after a policy meeting while the European Central Bank makes no public statement after its policy meetings.

C) the Federal Reserve publicly releases the minutes 3 weeks after the meetings while the European Central bank waits 20 years to publicly release its minutes.

D) the European Central Bank does not publicly release its economic forecasts while the Federal Reserve immediately releases its economic forecasts to the public.

4) What is the theory of bureaucratic behavior and how can it be used to explain the behavior of the Federal Reserve?

13.10   Should the Fed be Independent?

1) The case for Federal Reserve independence does not include the idea that

A) political pressure would impart an inflationary bias to monetary policy.

B) a politically insulated Fed would be more concerned with long-run objectives and thus be a defender of a sound dollar and a stable price level.

C) policy is always performed better by an elite group such as the Fed.

D) a Federal Reserve under the control of Congress or the president might make the so-called political business cycle more pronounced.

2) The political business cycle refers to the phenomenon that just before elections, politicians enact ________ policies.  After the elections, the bad effects of these policies (for example, ________ ) have to be counteracted with ________ policies.

A) expansionary; higher unemployment; contractionary

B) expansionary; a higher inflation rate; contractionary

C) contractionary; higher unemployment; expansionary

D) contractionary; a higher inflation rate; expansionary

3) The strongest argument for an independent Federal Reserve rests on the view that subjecting the Fed to more political pressures would impart

A) an inflationary bias to monetary policy.

B) a deflationary bias to monetary policy.

C) a disinflationary bias to monetary policy.

D) a countercyclical bias to monetary policy.

4) Critics of the current system of Fed independence contend that

A) the current system is undemocratic.

B) voters have too much say about monetary policy.

C) the president has too much control over monetary policy on a day-to-day basis.

D) the Board of Governors is held responsible for policy missteps.

5) Recent research indicates that inflation performance (low inflation) has been found to be best in countries with

A) the most independent central banks.

B) political control of monetary policy.

C) money financing of budget deficits.

D) a policy of always keeping interest rates low.

6) Make the case for and against an independent Federal Reserve.