Macroeconomics: Money and Banking · Class 12 · CBSE · Commerce Economics
Why is the central bank called the lender of last resort?
Practice question from Macroeconomics: Money and Banking (Class 12 · CBSE · Commerce Economics), with the correct answer and a step-by-step solution.
medium · Subjective · Q-C52370
Why is the central bank called the lender of last resort?
Answer: The central bank is called the lender of last resort because it provides emergency loans to commercial banks when they cannot obtain funds from other sources. This support helps prevent bank failures and maintains public confidence in the banking system.
Solution
As lender of last resort, the central bank supplies funds to commercial banks facing temporary liquidity shortages. This function helps protect the stability of the banking system.
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