Explain the concept of 'lender of last resort'. What is discount rate?
When risky business prospects make commercial banks hesitant to extend new loans, or when banks are in trouble, the Fed will step in by lending money to the banks, thus inducing them to lend more to their customers. Mammoth amounts of central bank lending to commercial banks helped keep the financial system functioning and ease the panic, as seen in 2007, 2008, and 2009.
The discount rate is the interest rate the Fed charges on loans that it makes to banks. Federal Reserve officials can try to influence the amount banks borrow by manipulating the discount rate. If the Fed wants banks to have more reserves, it can reduce the interest rate that it charges on loans, thereby tempting banks to borrow more. Alternatively, it can soak up reserves by raising its rate and persuading the banks to reduce their borrowings.
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What is the motivation for individuals to hold money?
A) to facilitate transactions B) to reduce risk C) to have liquidity D) all of the above
When a monopoly perfectly price discriminates, there is ________
A) no producer surplus B) an increase in supply C) no consumer surplus D) a large consumer surplus