During a financial crisis, the Fed and other central banks often adopt an extend and pretend...
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During a financial crisis, the Fed and other central banks often adopt an "extend and pretend" policy in their emergency lending activities. Which of the following is not a consequence of this policy? a. It enhances the moral-hazard problem going forward; banks will be more likely to engage in risky behavior. b. It increases the chances of the Fed itself (or another central bank) being dragged into its own bankruptcy crisis. c. It limits the potential for insolvent banks to drag down the solvent ones as well. d. It allows many poorly managed firms that have become insolvent due to making bad investments to avoid well-deserved bankruptcies. During a financial crisis, the Fed and other central banks often adopt an "extend and pretend" policy in their emergency lending activities. Which of the following is not a consequence of this policy? a. It enhances the moral-hazard problem going forward; banks will be more likely to engage in risky behavior. b. It increases the chances of the Fed itself (or another central bank) being dragged into its own bankruptcy crisis. c. It limits the potential for insolvent banks to drag down the solvent ones as well. d. It allows many poorly managed firms that have become insolvent due to making bad investments to avoid well-deserved bankruptcies.
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Related Book For
The Economics of Money Banking and Financial Markets
ISBN: 978-0133836790
11th edition
Authors: Frederic S. Mishkin
Posted Date:
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