Assertion (A): One of the primary functions of a central bank is to act as the lender of last resort. Reasoning (R): Central banks can influence interest rates through their monetary policy decisions, which include changes in the policy rate or reserve requirements.

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KollegeApply · Accepted Answer

Both A and R are true but R does not explain A. Explanation: The assertion is true because a central bank’s primary duty is to serve as the lender of last resort for commercial banks experiencing temporary liquidity difficulties. The reasoning is also true because modifying policy rates or reserve requirements allows the central bank to influence market interest rates, but it does not allow for the administrative emergency lending role mentioned in the assertion.

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