Question

As a priority of the Fed (and some other major central banks), financial stability

a. Ranks below monetary policy

b. Has taken on a comparable ranking to monetary policy

c. Ranks above monetary policy

d. Is not a central bank priority

Answer 1

Option (c) is correct.

As a priority of the Fed (and some other central banks), financial stability ranks above monetary policy.

One of the objectives of fed or major central banks is the financial stability. Financial stability involves good, effective and efficient financial system. A good and effective financial system will ensures the smooth functioning of the payments system and supply of capital. In order to achieve the objective of financial stability, Fed or other major central banks design the monetary policy. So monetary policy is a tool to achieve financial stability.In its monetary policy, central bank adjusts short term interest rates, loans to banks and other money supply.