The Role of Central Banks in an Economy: Functions and Impacts

The video explores the multifaceted role of central banks in the economy, focusing on their functions in ensuring financial and macroeconomic stability. It discusses the central banks' role as the lender of last resort, their regulatory influence, and their impact on foreign currency reserves. The video also highlights historical events like the 2008 financial crisis and regulatory changes in the UK, emphasizing the importance of central banks in maintaining economic stability.

What is one of the primary roles of central banks in an economy?

• To increase taxes

• To ensure macroeconomic stability

• To build infrastructure

• To manage private investments

How does the Bank of England achieve macroeconomic stability?

• By lowering wages

• By reducing exports

• By increasing unemployment

• By controlling the inflation rate

What is the 'lender of the last resort' function of central banks?

• Setting interest rates

• Offering liquidity to banks in distress

• Regulating stock markets

• Providing loans to the government

Which event highlighted the importance of the 'lender of the last resort' function?

• The 2001 dot-com bubble

• The 2008 financial crisis

• The 2010 European debt crisis

• The 1997 Asian financial crisis

What was a significant regulatory change in the UK after the 2008 financial crisis?

• Increase in personal taxes

• Introduction of the Financial Services Act

• Abolishment of the Bank of England

• Nationalization of all banks

Which body is NOT part of the UK's financial regulatory structure?

• Financial Conduct Authority (FCA)

• Prudential Regulatory Authority (PRA)

• Financial Policy Committee (FPC)

• International Monetary Fund (IMF)

What is the role of central banks as the 'bankers bank'?

• To provide loans to the public

• To regulate international trade

• To offer banking services to other financial institutions

• To manage foreign investments

Why might a central bank set a negative deposit rate?

• To reduce inflation

• To increase the central bank's profits

• To discourage banks from holding money at the central bank

• To encourage banks to hold more reserves

Which country is known for holding a large amount of foreign currency reserves?

• India

• United States

• China

• Germany

What is a potential consequence of a country like China calling upon its foreign currency reserves?

• Stabilization of global markets

• Increase in global inflation

• Significant impact on the foreign exchange market

• Decrease in global trade