Design 2 – The central bank has to submit a proposal for funding to the government each year or the central bank finances itself from the earnings on its assets and turns the balance over to the government.

Homework Activity – Central Bank Design

Imagine you are advising the leadership of a new, independent country for the design of their central bank. In 1–2 pages, do the following:

Describe one benefit and one drawback for each type of central bank design listed below:
Design 1 – Central bank policy decisions that are irreversible or central bank policy decisions that can be overturned by the democratically elected government.
Design 2 – The central bank has to submit a proposal for funding to the government each year or the central bank finances itself from the earnings on its assets and turns the balance over to the government.
Design 3 – The central bank policymakers are appointed for periods of four years to coincide with the electoral cycle for the government or the central bank policymakers are appointed for 14-year terms.
In 1–2 paragraphs, identify the design you would recommend for this country and why.
Be sure to describe any necessary characteristics and assumptions about this country to support your recommendation.