You must answer any 3 (THREE) of the 5 (FIVE) questions below. Each question has a word count of 1,000 words, with a leeway of 100 words in either direction, not including cover page, bibliography, charts, etc. given the nature of the short answers you must not use more than 1 or 2 citations per question.
Each question is worded to invite you to analyse critically an assertion, debate, question, or point of contention. Each question has been carefully worded; understanding the question is, therefore, part of what is being tested. In each case, your answer will be judged, not based on the position you take, but the quality of your arguments and the evidence (either quantitative, qualitative, or both) you bring to bear to support them. Merely stating your opinion is not sufficient: you must provide reasons for your point of view, based on arguments and evidence. Be sure to cite any literature to which you refer. QUESTIONS:
(1) The conventional view in economics holds that banking is a uniquely fragile activity that requires extensive government regulation (by the central bank and possibly other regulators) to prevent frequent, periodic crises. The alternative view holds that an unregulated, or lightly regulated, private banking system, with our without a central bank, can provide the foundation of a stable banking and financial system. Which view do you think makes more sense?
(2) It is widely believed by economists (although not always by policymakers) that national central banks require functional, or de facto, independence, whether or not they enjoy legal, or dejure, statutory independence, in order to maintain macroeconomic stability and low and predictable inflation as well as minimising the occurrence of financial crises. Do you agree? Note that you are not debating here the merits of having a central bank, but whether a central bank should be functionally autonomous of the fiscal authorities, assuming you have a central bank in place.
(3) Conventional economics orthodoxy holds that inflation targeting is the best amongst available monetary policy regimes available to modern central banks, whether in advanced or emerging economies. Do you agree? If so, 1
provide reasons; if not, explicate and defend an alternative monetary policy regime.
(4) When the Bretton Woods fixed exchange rate system collapsed in 1971, the world moved to a non-system of “flexible managed exchange rates”, with the absence of a global monetary order. Speaking about this situation, Nobel economist Robert Mundell, taking a leaf from former central banker Paul Volcker, has argued: “A global economy requires a global currency.” Do you agree? Be sure to explain your understanding of a “global currency” as part of your answer.
(5) Recently, Piyush Goyal, interim finance minister of India, suggested that he favoured “printing money” as a way of helping to fund the central government’s burgeoning fiscal deficit. By “printing money”, Goyal was referring to seigniorage revenue of the central bank which is paid as a dividend to the government. Similar views have been expressed recently by other government officials in a range of advanced and emerging economies. Do you agree with Goyal that increased reliance on seigniorage is a good way for advanced and emerging economies to raise government revenue?