CFA Practice Question

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CFA Practice Question

A central bank can directly set ______.

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.
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