The government's role of lender of last resort is directed to:
A) large manufacturing firms that employ thousands of people.
B) depositors; this is role the government plays when they insure depositors' balances in banks that fail.
C) developing countries that are trying to build their financial systems.
D) banks that experience sudden deposit outflows.

Question

Quizplus · Accepted Answer

The government's role of lender of last resort is directed towards banks that experience sudden deposit outflows. In times of financial instability, depositors tend to withdraw their deposits, causing a liquidity crisis for the banks. The government, as a lender of last resort, provides the banks with emergency loans to meet their short-term liquidity needs and prevent a potential bank run.

The Government's Role of Lender of Last Resort Is Directed