By acting as a lender of last resort, the central bank:
A)causes a vicious cycle of deleveraging.
B)prevents a vicious cycle of deleveraging.
C)is decreasing the amount of reserves that a bank is required to hold.
D)may keep interest rates low but will likely drive unemployment up.

Question

Quizplus · Accepted Answer

By acting as a lender of last resort, the central bank can prevent a vicious cycle of deleveraging. When banks are unable to borrow from other institutions, they may default on their obligations, causing a ripple effect throughout the financial system. This could lead to a "run on the bank" scenario that could potentially spread to other banks. By providing liquidity to banks, the central bank can help prevent such a scenario and stabilize the financial system.

By Acting as a Lender of Last Resort, the Central