Under which condition would the Fed be most likely to engage in its role as the lender of last resort?
A) when throngs of borrowers apply for loans as the housing market picks up
B) when a stock market crash causes people to sell their stocks and purchase bank CDs instead
C) if a lack of confidence in the financial system causes savers to withdraw money from banks
D) when record amounts of student loans are paid back before interest rates rise

Question

Quizplus · Accepted Answer

The Fed acts as a lender of last resort primarily to prevent bank runs and maintain stability in the financial system. If savers withdraw money due to a lack of confidence, it can lead to a liquidity crisis, prompting the Fed to step in.

Under Which Condition Would the Fed Be Most Likely to Engage