A high quality answer will focus on concepts, arguments, and evidence (whether qualitative, quantitative, or both), and not on merely stating opinions that fail to be backed up by analysis.
(1) Raghuram Rajan has argued: “The industrial economies are using ultra-loose monetary policy, while the emerging markets are using currency intervention and capital controls. (…) The tools they are using will create distortions—both ultra-loose monetary policy and intervention risk creating excess liquidity and asset price bubbles. If capital is too cheap, we will tend to use it too much. If the exchange rate is too low, we will focus on producing for exports. And if tempers boil over, we could get ugly protectionism.” Do you agree or disagree? Discuss critically.
(2) The Financial Times recently reported: “Senior Federal Reserve officials are calling for tougher financial regulation to prevent the US central bank’s low interest-rate policies from giving rise to excessive risk-taking and asset bubbles in the markets. The push reflects concerns that the Fed’s ultra-loose monetary policy for struggling families and businesses risks becoming a double-edge sword, encouraging behaviour detrimental to economic recovery and creating pressure for additional bailouts.” Do you agree or disagree with the Fed’s actions? Discuss critically.
(4) “An independent central bank is a crucial institutional safeguard against unwise monetary policies and to prevent excessive inflation, especially hyperinflation.” Do you agree or disagree? Discuss critically.
Sample Solution
