How could the rumor of a bank failure actually turn into a bank failing? Is the bank really without assets?
Individuals who heard a rumor that their bank was about to fail, generally hurried to the bank to withdraw their account balances. As a result, more and more individuals also make a run on the bank. Since banks only keep a portion of their assets in cash reserves, a heavy demand on the cash balances of large numbers of accounts creates a severe cash drain, and in effect the rumor becomes reality. Banks would still hold assets, but at the short notice of a run on the bank would be unable to convert those holdings to cash in order to satisfy their customers' demands for cash.
You might also like to view...
Government shares in the gains to risk-bearing activities but does not _____
a. share in the losses when depreciation is straight-line b. share in the losses when the investor has no other income c. share in the losses when depreciation is accelerated d. share in the losses when capital losses are allowed
The institutional production possibilities frontier illustrates the different combinations of goods that society can obtain given
A) the constraints of finite resources and the current state of technology. B) the price level. C) its institutional constraints. D) the natural rate of unemployment. E) the constraints of finite resources and the current state of technology and institutional constraints.
Demand for necessities is inelastic, while demand for luxuries is elastic.
a. true b. false
Saying a firm will continue investing up to the point at which ________ is equivalent to saying that a firm will keep investing in new capital up to the point where the expected rate of return is equal to the interest rate.
A. the interest rate is equal to the inflation rate B. the marginal revenue product of capital is equal to its rental cost C. the return on capital is equal to depreciation D. the marginal product of capital is equal to the marginal product of labor