The principal purpose of a central bank acting as a lender of last resort is to:
A) prevent the failure of insolvent financial institutions.
B) maintain the liquidity of the financial system.
C) provide adequate funds to finance the government's spending.
D) keep interest rates as low as possible.

Question

Quizplus · Accepted Answer

The principal purpose of a central bank acting as a lender of last resort is to maintain the liquidity of the financial system, ensuring that financial institutions have access to emergency funds to prevent a liquidity crisis that could lead to a systemic collapse.

The Principal Purpose of a Central Bank Acting as a Lender