What is the difference between a bank run and a bank panic? How might a bank run and asymmetric information lead to a bank panic?
What will be an ideal response?
A bank run is the process by which depositors who have lost confidence in a bank simultaneously withdraw their funds. A bank panic is a situation in which many banks simultaneously experience runs. When one bank suffers a run, depositors may interpret the run as an indication of a general problem with the banking system, and due to asymmetric information, depositors may have difficulty separating out troubled banks from solvent banks and decide to withdraw their deposits from all banks.
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Fill in the blank(s) with the appropriate word(s).
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A) bureaucrats B) public costs C) indifference curves D) market prices
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