Question

What are the primary functions of a central bank?

Conduct monetary policy
Grow the economy
Provide banking services to businesses and consumers
Ensure that the financial system is stable
Provide banking services to commercial banks, depository institutions, and the federal government
Conduct fiscal policy

Answer 1

The central bank conducts monetary policy, ensures financial system stability, and provides banking services to commercial banks, depository institutions, and the federal government; it is not responsible for fiscal policy or directly growing the economy.

Step-by-step explanation:

The central bank serves as the backbone of a nation's financial system and undertakes critical tasks to ensure economic stability. The primary functions of a central bank are:

1. To conduct monetary policy, which involves managing interest rates and credit conditions to influence economic activity.
2. To ensure the stability of the financial system, acting as a regulator to maintain the integrity and efficiency of the financial markets.
3. To provide banking services to commercial banks, other depository institutions, and the federal government, supporting the operation of the financial system.

While growing the economy is a broader objective influenced by the central bank's actions, it is not a direct function. Moreover, conducting fiscal policy is primarily the responsibility of the government, not the central bank.

Answer 2

The correct answer is:

• Conduct monetary policy;
• Ensure that the financial system is stable;
• Provide banking services to commercial banks, depository institutions, and the federal government.

Step-by-step explanation:

A central bank is the apex monetary authority in a country. It plays several crucial roles in the smooth working of the economy.

1. A central bank issues currency on behalf of the government.
2. It formulates monetary policy on behalf of the government.
3. It acts as a banker for the government.
4. It acts as a banker for commercial banks.
5. It supervises all financial institutions.

The role of providing services to businesses and consumers is played by commercial banks. Fiscal policy is formulated by the government. The responsibility of ensuring the growth of the economy also falls with the government.