Which do you think would be more harmful to the economy—an inflation rate that averages 5 percent a year that has a high standard deviation or an inflation rate of 7 percent that has a standard deviation close to zero?

1. What is Central Bank Independence(CBI)? What is the difference between political and operational independence? 2. Why do you expect the relationship between CBI and inflation to differ between the federal reserve and the central banks for the CFA?

Suppose that the Fed want to lower the inflation rate. Discuss what policy instruments the Fed can use besides raising interest on reserves.

1. Which of the following would NOT cause a rise in the money supply (assume ceteris paribus)? A. An increase in government spending financed by borrowing from the central bank. B. The centFal bank imposes a reserve requirement (reserve ratio) on banks above their current ratio. C. A rise in demand for money and the central bank does not change interest rates. D. The central bank agreeing to swap toxic assets for cash (quantitative easing). E. All of the above.

9. According to the quantity theory of money, the Fed could combat inflation by: Multiple Choice decreasing the supply of money. increasing taxes. increasing the supply of money. reducing taxes.   10. The real interest rate is: Multiple Choice adjusted for inflation. the amount of interest the bank pays you for saving or charges you for borrowing. the federal funds rate. the actual average interest rate in the economy.   11. Suppose the annual nominal interest rate is 10 percent and the inflation rate is 6 percent. If you deposit $1,000, at the end of the year: Multiple Choice your purchasing power will have increased. your savings will have nominal increased by $100. you will have earned a real rate of return of 4 percent. All of these statements are true.