Question

Which is NOT an argument in favor of central bank independence:

A. It avoids the time inconsistency problem

B. It supports fiscal discipline

C. It puts experts in charge of monetary policy

D. It allows the Fed to implement unpopular policies for the greater good

E. It fosters the synchronization of monetary and fiscal policy.

Group of answer choices

E. It fosters the synchronization of monetary and fiscal policy.

A. It avoids the time inconsistency problem

B. It supports fiscal discipline

C. It puts experts in charge of monetary policy

D. It allows the Fed to implement unpopular policies for the greater good

Answer 1

E. is the right answer. Pls see explanation below.

A. It avoids the time inconsistency problem - This is a valid argument. Fed's policies can be inconsistent over a period of time as the political party in power changes and wants to change the monetary policy adopted by the previous govt headed by the other political party

B. It supports fiscal discipline - This is a valid argument. The govt can overspend if it is not controlled by an independent central bank.

C. It puts experts in charge of monetary policy - This is a valid argument. The skillset required to run monetary policy is different from the one that the politicians running the govt possess.

D. It allows the Fed to implement unpopular policies for the greater good - This is a valid argument. The govt would shy away from implementing unpopular policies but the Fed can do so.

E. It fosters the synchronization of monetary and fiscal policy.- This is not a valid argument. Synchronization of monetary and fiscal policy, if required, can actually be better if the central bank follows the govt's command