Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 29, Problem 1DQ
To determine
The need of a central bank for a modern-industrial economy.
Expert Solution & Answer
Explanation of Solution
A central bank is the apex bank of a country. It controls the money supply of the economy and keeps the economy stable and free from the economic fluctuations. The primary function of a central bank is to control the money supply in the economy. A central bank promotes the safety of the country’s banking system by requiring sound business practices of its member banks and by acting as a lender of the last resort. Therefore, the central banks play an important role in the functioning of an economy.
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