Question

The Fed is the lender of last​ resort, which means​ _______. A. if the Fed cannot meet its​ obligations, it can borrow from other depository institutions B. if home owners cannot make their mortgage​ payments, they can borrow from the Fed C. if depository institutions are short of​ reserves, they can borrow from the Fed D. if business owners cannot make their loan​ payments, they can borrow from the Fed

Answer 1

Answer:

The correct answer is letter "C": if depository institutions are short of​ reserves, they can borrow from the Fed.

Explanation:

The Federal Reserve (Fed) is the central bank of the United States and is in charge of reviewing and passing monetary policies, regulations on banks and supervising their activities. The Fed serves as a lender of last resort in cases when banks cannot meet their minimum financial obligations and there is risk the collapse of those financial institutions will affect the overall economy.

Therefore, if a depository entity is short of reserves, other banks must be the first resource of aid but if the institution cannot get the funds from other banks, the Fed acts as the last resource the depository entity could rely on.