When a central bank acts as lender of last resort, it , and there is no cost to the .
A)helps a solvent institution facing a liquidity crisis; central bank or taxpayers
B)helps an insolvent institution; borrower
C)helps a bank take over another financial institution; bank being purchased
D)prevents a credit crunch; Treasury Department

Question

Quizplus · Accepted Answer

When a central bank acts as lender of last resort, it helps a solvent institution facing a liquidity crisis, meaning the institution is still financially sound but doesn't have enough liquid assets to meet its short-term obligations. The central bank provides the necessary funds to prevent the institution from collapsing and creating a systemic crisis. There is no cost to the taxpayers as the central bank lends at an interest rate and the institution repays the loan.

When a Central Bank Acts as Lender of Last Resort