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Pros and cons of central bank role as lender of last resort

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1. Would you expect the spread between corporate bond yields and those on government debt to be pro-cyclical or counter-cyclical? Explain.

2. Describe how an open market sale of T-Bills, carried out by the central bank, affects interest rates, the banking system and real economic activity. Under what circumstances would the central bank carry out such an operation?

3. Briefly explain the pros and cons of central bank's role as lender of last resort.

4. Find and read the article: "Central banks and the markets: Enabling the addiction." The Economist Online, 30 March 2016. Provide a brief (one-page maximum) discussion of the negative implications of the Fed's real and perceived actions to stabilize financial markets. Use the tools and terminology learned in this course wherever possible.

Reference no: EM131388343

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