Whenever the Central Bank Lends to Solvent but Illiquid Private

question 142

Multiple Choice

Whenever the central bank lends to solvent but illiquid private financial institutions, it does not endanger the peg. Why not?

• A) The money demand and supply increase together, so interest rates are not affected, and the purchase of new domestic credit, when repaid, will restore the backing ratio.
• B) The central bank finances the lending by selling reserves and the backing ratio is lower.
• C) Private illiquid banks could borrow internationally, if needed, to repay their loans.
• D) The peg is guaranteed by the administration, which stands ready to support it by selling reserves.

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Definitions:

Flow State

A mental state in which a person performing an activity is fully immersed in a feeling of energized focus, full involvement, and enjoyment in the process of the activity.

Involvement

The degree of personal relevance or interest that a consumer perceives in a product, service, or brand, affecting the intensity and depth of the decision-making process.

Motivation

Motivation is the internal drive or external stimulus that prompts individuals to act or behave in a particular manner towards achieving a goal.

Consumer Involvement

Refers to the level of interest and personal relevance a consumer feels towards a particular product or service.