Macroeconomics, 2nd Edition by Pearson

40

MACROECONOMICS

central bank is said to act as a

LENDER

OF

LAST

RESORT

when the banking system

is not in a position to obtain additional funds from its own internal bor-

rowing and lending. Since borrowing from the central bank under a

CREDIT

FACILITY

—as occurs under the refinancing facility—often triggers greater

supervision from the central bank into the borrowing bank’s asset man-

agement and other practices, it is rarely practised. However, the central

bank lends to the commercial banks via an auction procedure or

OPEN

-

MARKET

OPERATION

(an issue we discuss a little later in Section 2.3.3).

2.

Currency in circulation ...