Question

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. @economics

Answer 1

the answer is A of course. Many bank loans, especially those for commercial firms have CALL features which the bank can use to add to its reserves and thus reduce its exposure to possible default. THis will also result in a reduction in the money supply of the nation. wmw