Which of the following best describes the primary goals of a central bank?

• A. To maximize government spending and reduce taxes
• B. To provide loans directly to households and businesses
• C. To regulate international trade and set exchange rates
• D. To maintain price stability and promote economic growth

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the role of a central bank in an economy. Central banks are primarily responsible for managing the country's monetary policy, which influences inflation, employment, and overall economic growth.
2. Step 2: Recognize that central banks aim to maintain price stability, meaning they try to keep inflation low and stable to preserve the purchasing power of the currency.
3. Step 3: Know that promoting economic growth is another key goal, which involves creating conditions that support sustainable increases in output and employment.
4. Step 4: Identify that central banks do not directly maximize government spending or reduce taxes; these are fiscal policy tools managed by the government.
5. Step 5: Understand that while central banks may influence exchange rates indirectly through monetary policy, regulating international trade and setting exchange rates are not their primary goals.