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Federal Reserve System: " Lender of Last Resort"

When applying monetary policy, the Federal Reserve System is known as "the lender of last resort." What does this mean, and what tools are used during a lending crisis?

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The reason why the Fed is known as the lender of last resort is because every monetary policy initiated by the Fed has undesirable effects. When there is a lending crisis, it means that the economy has contracted. The Fed needs to use an expansionary policy to expand the economy. The most common way of doing ...

Solution Summary

This solution discusses the meaning of the Federal Reserve being the lender of least resort. This solution also explains the tools that are commonly used during a lending crisis.