If the Central Bank Can Act as a Lender of Last

question 41

Multiple Choice

If the central bank can act as a lender of last resort during a banking panic,banks can

• A)call in their loans to their customers and eventually restore the public's faith in the banking system.
• B)satisfy customer withdrawal needs and eventually restore the public's faith in the banking system.
• C)borrow more and more money from the central bank,and this will lower its reserves and decrease the public's faith in the banking system.
• D)encourage the public to borrow directly from the central bank,and this will worsen the banking panic.

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Definitions:

Long-Term Investment

Investments in securities or other assets that are intended to be held for several years or more.

Cash Dividends

Payments made by a corporation to its shareholders as a distribution of profits, typically in cash form, reflecting the company's profitability.

Cost Method

An accounting method used for investments, where the investment is recorded at its acquisition cost and adjustments are made for dividends received and changes in fair value are not recorded.

Trading Securities

Financial instruments bought and held primarily for selling them in the near term to profit from short-term price movements.