- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 4. Monetary Policy
- Subject 1. Role of Central Banks
CFA Practice Question
A central bank can directly set ______.
B. the short-term interest rate but not the monetary base
C. either the monetary base or the short-term interest rate but not both
A. the monetary base but not the short-term interest rate
B. the short-term interest rate but not the monetary base
C. either the monetary base or the short-term interest rate but not both
Correct Answer: C
The value of one is the consequence of the other. If the monetary base is decreased then the interest rate will rise, and vice versa. A central bank can set either of the two variables but not both.
User Contributed Comments 4
| User | Comment |
|---|---|
| YOUCANDOIT | what ta central bank can't directly set is price level (inflation). |
| choas69 | what is monetary base? |
| choas69 | its the monetary base mate. |
| sshetty2 | changing the money supply; open market operations I think. |