0 a bank that provides services to a national government, puts the official financial plans of that government into operation, and controls the amount of money in the economy
1 the official bank of a country, whose responsibilities typically include making money available and controlling interest rates:
Each federal reserve bank is a large central bank organized by the banks of a certain district.
The federal government should establish a central bank of the United States.
Will a central bank of issue, or some institution like it, establish the business of the country on a basis less likely to be disturbed by panics?
Following the realization of liquidity shocks, a borrowing bank reports t to the central bank.
We assume that the central bank uses (2) to guide its policy decisions.
But m is observable by the government and can be used to control the behavior of the central bank.
All other choices imply that the central bank has tried to deceive the public and will therefore lead to severe punishment.
Then the public could learn over time whether the central bank is informed or uninformed.
