A Lender of Last Resort Is a Financial Institution That

question 12

Multiple Choice

A lender of last resort is a financial institution that is willing and able to lend to:

• A)individuals who have other debts outstanding.
• B)individuals who do not have a positive net worth.
• C)banks that are not members of the Federal Reserve System.
• D)fractional reserve system banks experiencing runs on their deposits.
• E)Federal Reserve System member banks experiencing runs on their deposits.

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Definitions:

MC

An abbreviation commonly used for "Marginal Cost," which refers to the additional cost incurred by producing one more unit of a good or service.

Liability Rule

A legal principle that allocates the economic burden of damages to the party responsible for causing harm.

Coase Theorem

A principle stating that if trade in an externality is possible and there are no transaction costs, parties will negotiate to produce an efficient outcome.

Free-Rider Problem

A situation in which individuals benefit from resources or services without paying for them, leading to underprovision of those goods.