During financial/banking crises, central banks typically act as lenders of last resort to stabilize the financial system. Why is this role considered to be critical? options a. If there is a lender of last resort, this can induce another moral hazard problem between financial intermediaries and the central bank with high cost for the society. b. Large banks can be "too big to be rescued" c. Central banks are supposed to focus on inflation and the role of lender of last resort induces a conflict of interests. d. All of the above

During financial/banking crises, central banks typically act as lenders of last resort to stabilize the financial system. Why is this role considered to be critical? options a. If there is a lender of last resort, this can induce another moral hazard problem between financial intermediaries and the central bank with high cost for the society. b. Large banks can be "too big to be rescued" c. Central banks are supposed to focus on inflation and the role of lender of last resort induces a conflict of interests. d. All of the above

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter28: Monetary Policy And Bank Regulation

Section: Chapter Questions

Problem 37CTQ: Is it preferable for central banks to primarily target inflation or unemployment? Why?

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