Final answer:
Central banks are deeply influenced by the strength of the economy, particularly through exchange rates that affect aggregate demand, and can face political pressure from governments with differing economic goals, such as inflation control or stimulating growth.
Step-by-step explanation:
Among the responsibilities of central banks is to monitor and influence the economy, particularly in regard to the exchange rate. The exchange rate's impact on aggregate demand can be profound as it directly affects the price of exports and imports, determining a nation's competitive edge in the global market. Hence, significant fluctuations in the exchange rate can lead to disruption in international trade and may instigate issues within the banking system, potentially leading to an unsustainable trade balance and vulnerability to economic shocks such as recessions precipitated by the sudden withdrawal of international financial capital.
Moreover, while some economists believe a central bank should primarily focus on inflation targeting, others argue for a more nuanced approach where the central bank can flexibly respond to various economic indicators including employment and GDP growth. This reflects the dynamic relationship between central bank policies, macroeconomic targets, and the overall health of the economy.