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According to Walter Bagehot, a central bank should lend freely to solvent but illiquid banks on good collateral at a penalty rate of interest, as

According to Walter Bagehot, a central bank should lend freely to solvent but illiquid banks on good collateral at a penalty rate of interest, as announced in advance. Charging a penalty rate of interest _____.

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limits risk to the central bank

limits risk to the borrowing bank

limits moral hazard

None of the above.

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