Question

How did the ECB act as a Lender of Last Resort during the economic crisis?

i. Increasing interest rates

ii. Providing liquidity to commercial banks

iii. Buying sovereign bonds

iv. Acknowledging the ECB cannot do whatever it takes to save the Euro

Group of answer choices

A)i to iii

B)All answers are correct

C)i and ii

D)ii and iii

Answer 1

In the times of economic crisis the ECB takes two broad types of actions. As a passive response,ECB provide liquidity to banks to stabilise markets and promote lending. with an intention to provide liquidity ECB purchases bonds from the market .Thus increasing monetary supply in the market.

Hence ECB acts as a lendor of last resort during financial crisis by ii)providing liquidity to commercial banks and iii)buying sovereign bonds. Therefore answer is D) ii and iii