During a financial crisis, a central bank acts as a 'lender of last resort' by providing emergency liquidity to solvent commercial banks facing short-term funding shortfalls.
Which one of the following is the most likely direct consequence of this central bank intervention?
A decrease in the level of moral hazard in the financial system
An increase in the capital adequacy ratio of commercial banks
A reduction in systemic risk and the likelihood of bank runs
A contraction in the central bank's balance sheet
18 exam-style questions on Edexcel A A Level Economics 4.4.3 Role of central banks. Each one has a worked solution and a mark scheme showing where the marks go.