Angelica Hagad BSBA 3-B

Study Guide 7

Creating a Successful Central Bank

Learning Activity 1: Individual Activity

1. What is central bank independence?
A central bank is independent if it can make policy, such as
setting interest rates or printing money, without interference
from elected officials or the private sector. The primary
justification for an independent Federal Reserve is the need to
insulate it from short-term political pressures. Without a degree
of autonomy, the Fed could be influenced by election-focused
politicians into enacting an excessively expansionary monetary
policy to lower unemployment in the short term.
2. What is policy framework?
A policy framework is document that sets out a set of
procedures or goals, which might be used in negotiation or
decision-making to guide a more detailed set of policies, or to
guide ongoing maintenance of an organization's policies. It is a
document that sets out a set of procedures and process on
records management. A policy framework is a logical structure
that is established to organize policy documentation into
groupings and categories. It provides a set of principles and long-
term goals that form the basis of making rules and guidelines,
and to give overall direction to planning and development of the
organization.
3. What is policy trade-offs and credibility?
Making decisions requires trading off one item against another.
In economics, the term trade-off is often expressed as an
opportunity cost, which is the most preferred possible
 alternative. A trade-off involves a sacrifice that must be made to
get a certain product or experience while the credibility is the
quality of being believed or trusted.
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