Functions of the Federal Reserve System
The Federal Reserve System looks after the financial activities and operations of the banking system. It is the apex body that has complete control over the banking regulations. All the guidelines regarding the banking system, money supply, and formulation of the monetary policy come under the purview of the Federal Reserve System. The New York Fed also helps in drafting the monetary policy and supervising the financial system.
Elastic and Inelastic Markets
Measuring the change in percentage of an economic variable with respect to change in a different economic variable is known as elasticity. This change in percentage results in a change in price concerning changes in other factors. In simple terms, when one factor brings a change to another factor, it is called elasticity.
QUESTION 5
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What is the key problem associated with the Fed's lender-of-last-resort role?
A. May generate moral hazard problems if banks believe they will be bailed out
B. May generate adverse selection problems
C. May generate moral hazard problems if individual firms believe they will be bailed out
D. May generate free-rider problems
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