- B1 Part A Central Banks Are Generally Identified By Their Functions 20215 Page 7 Of 9 Explain The Lender Of Last Res 1 (83.77 KiB) Viewed 20 times
B1 Part (a) Central banks are generally identified by their functions. 20215 Page 7 of 9 Explain the 'lender of last resort' function (LLR) and how it can lead to moral hazard in the financial markets. [6 marks] Part (b) 'Loans create deposits' rather than traditional thinking that 'deposits create loans'. Explain what this means and how does lending increase the money supply? [10 marks] Part (c) Discuss the advantages and disadvantages of a central bank being independent of government (10 Marks] Part (d) Explain why both the Federal Reserve (USA) and the European Central Bank have both 'instrument independence' and 'goal independence'. [4 marks] [Total 30 Marks]