PaolaCamacho_ECO320_WEEK4

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Strayer University *

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320

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Economics

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Feb 20, 2024

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Week 4 Homework Activity - Central Bank Design Imagine you are advising the leadership of a new, independent country for the design of their central bank. In 1-2 pages, do the following: 1. Describe one benefit and one drawback for each type of central bank design listed below: Design 1: Central bank policy decisions that are irreversible or central bank policy decisions that can be overturned by the democratically elected government. Benefit: An independent central bank will make better economic decisions by making policies for those inside the central bank. This will disallow outsiders to decide in a central bank’s current and future finance. Drawback: A central bank needs government assistance to help ensure that business and operations are in the best interests of the people and company. Design 2: The central bank has to submit a proposal for funding to the government each year or the central bank finances itself from the earnings on its assets and turns the balance over to the government. Benefit: Funding proposal is reviewed and verified by the government. Drawback: The bank will only be able to get funding every year if approved and submitted within deadlines.

Design 3: The central bank policymakers are appointed for periods of four years to coincide with the electoral cycle for the government or the central bank policymakers are appointed for 14- year terms. Benefit: The central bank policy makers are appointed for periods of four years to coincide with an electoral cycle for the government. Policy makers who are appointed for four years are usually less likely to influence than those who are appointed for an extended period. Drawback: Policy makers with longer terms have more chances to cause corruption. 2. In 1-2 paragraphs, identify the design you would recommend for this country and why. The goal of the central bank of a new newly independent country is to establish financial stability. Since it’s an upcoming central bank and country, I do believe that design 1 is the design that I would recommend. Being a new country political corruption has not occurred, allowing elected officials to be able to run policies fairly and within the best interest of the country. By having a process of elected officials, the country can influence its regulations in financial institutions. For example, by creating security measures that can alert financial institutions of money laundering, trafficking etc. This can create accountability between the country and central banks but also creates jobs which can also stabilize low unemployment rates. This will also create safety in the country and help assure that money is being used correctly within the government and help maintain the value of the dollar.

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