When the Fed acts as a "lender of last resort," as it did in the ﬁnancial crisis of 2007-2008, it is performing its role of

Question

Quizplus · Accepted Answer

The role of a lender of last resort is to provide funds to banks or other financial institutions that are experiencing a liquidity crisis and cannot obtain funds elsewhere. This is typically done by the central bank, which acts as a bankers' bank by providing loans to other banks. In the case of the financial crisis of 2007-2008, the Fed provided loans to banks and other financial institutions to prevent a collapse of the financial system. Therefore, option C is the correct choice. Option A, controlling the money supply, is a broader role of the Fed that includes setting interest rates and implementing monetary policy to maintain price stability and full employment. Option B, setting the reserve requirements, is a tool used by the Fed to regulate the money supply by requiring banks to hold a percentage of their deposits as reserves. Option D, providing for check clearing and collection, is a function of the Fed that involves ensuring the smooth flow of payments between banks.

When the Fed Acts as a "Lender of Last Resort