In its role as a lender of last resort, the government lends to banks that are

Question

Quizplus · Accepted Answer

The government's role as a lender of last resort is to provide liquidity to banks that are solvent but facing temporary liquidity shortages. This means that the banks are still financially sound, but they may be experiencing short-term cash flow problems that prevent them from meeting their obligations. By lending to these banks, the government can prevent a liquidity crisis from spiraling out of control and causing widespread financial instability. Therefore, Choice A, which states that the government lends to solvent but illiquid banks, is the best choice.

In Its Role as a Lender of Last Resort, the Government