Central Banking Concepts and Issues

The video explores the diverse roles of central banks, focusing on monetary policy, government banking, financial stability, and regulation. It highlights the central bank's function as a lender of last resort, addressing liquidity crises and systemic risks. The video also evaluates the implications of these roles, such as moral hazard and regulatory capture, and discusses the rationale behind bank bailouts.

What is one of the primary roles of the central bank in macroeconomic management?

• Managing public health

• Regulating international trade

• Implementing monetary policy

• Setting fiscal policy

How does the central bank influence interest rates as a banker to the government?

• By issuing currency

• Through open market operations

• By setting tax rates

• By controlling inflation directly

What is the purpose of the central bank acting as a lender of last resort?

• To prevent bank runs and manage liquidity crises

• To increase government revenue

• To control inflation

• To regulate international trade

What are the two branches of the liquidity assurance scheme?

• Domestic and international funding

• Public and private sector support

• Emergency and non-emergency liquidity

• Short-term and long-term loans

What is a key regulatory role of the central bank?

• Regulating the financial system to maintain stability

• Controlling national defense

• Setting national tax rates

• Managing public education

Why might the central bank advise on bank bailouts?

• To control inflation

• To reduce government spending

• To prevent a financial system collapse

• To increase its own profits

What is a potential issue with the lender of last resort function?

• It encourages banks to take excessive risks

• It limits international trade

• It reduces government revenue

• It increases inflation

What is moral hazard in the context of central banking?

• A condition where inflation is uncontrollable

• A case where government bonds lose value

• A situation where banks are encouraged to take risks because they expect a bailout

• A scenario where interest rates are too high

What is regulatory capture?

• When inflation captures economic growth

• When interest rates capture investment

• When banks capture market share

• When regulators are influenced by those they regulate

Why might it be considered unfair for banks to receive emergency liquidity?

• Because it increases inflation

• Because other industries do not receive similar support

• Because it reduces government revenue

• Because it limits international trade