In what way can the Federal Reserve's lender-of-last-resort function actually lead to more financial chaos?
A)It encourages businesses to engage in risky projects.
B)It undermines monetary policy.
C)It can lead to banks taking increased risks.
D)The public may expect increased bank failures.

Question

Quizplus · Accepted Answer

The lender-of-last-resort function of the Federal Reserve can lead to moral hazard, as banks may feel more comfortable taking on increased risks knowing that they can turn to the Fed for support in times of financial distress. This can actually lead to more financial chaos in the long run.

In What Way Can the Federal Reserve's Lender-Of-Last-Resort Function Actually