Answer to Question #305142 in Macroeconomics for Yaya

Question

If the A bank experiences liquidity shortages, they can first borrow from …

a. 

another commercial bank and then the reserve bank as lender of last resort.

a. another commercial bank and then the reserve bank as lender of last resort.

b. 

the reserve bank since it is the only lender of last resort.

b. the reserve bank since it is the only lender of last resort.

c. 

bank B and bank C as the lenders of last resort.

c. bank B and bank C as the lenders of last resort.

d. 

bank C only as the lender of last resort.

Answer 1

The correct answer is;

b. The reserve bank since it is the only lender of last resort.

Explanations

Banks may not be in a position to provide liquidity in a bank-centered crisis since the crisis may lead investors to question the safety of bank deposits and even with deposits insurance.