Question
Question 1 (50 marks) The central bank act as a lender of last resort (LLR) to protect the financial system's smooth operations and efficiency. However,
Question 1 (50 marks)
The central bank act as a lender of last resort (LLR) to protect the financial system's smooth operations and efficiency. However, there are three alternative views on the lender of last resort function:
The Classic View: argues that the central bank should provide whatever funds are required to calm the panic.
Modern Free Banking: argues that the government authority is not required to act as a lender of last resort.
Charles Goodhart: argues that the lender of last resort should help illiquid banks and also insolvent banks.
Which one of the arguments above do you agree or disagree with? Defend yourself with relevant evidence.
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