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Federal Reserve System: " Lender of Last Resort"

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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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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.

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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 ...

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