The banking system of the United States is a fractional reserve system. What dangers does this pose for the safety of the banking system?
Fractional reserve banking means that each individual bank only keeps a fraction of its deposit liabilities on hand as cash in the vault or easily accessible reserves. Therefore, every individual bank is vulnerable to a bank run, a situation where many depositors attempt to withdraw all of their deposits in cash at the same time. If the situation were to spread from bank to bank, the entire banking system could be subject to collapse. This possibility of bank runs means that bankers have to perform something of a balancing act in weighing the benefits to the bank of the profits from loans against the need for prudent levels of reserves to handle depositors' withdrawal demands. In the United States today, the probability of bank runs has been substantially reduced by government regulation and supervision of banks along with the existence of federal deposit insurance.
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Refer to Figure 10-6. The market is in equilibrium. If the government budget deficit rises, which of the following would you expect to see?
A) The budget deficit will have no impact on the quantity of loanable funds demanded by firms. B) The quantity of loanable funds demanded by firms will rise above $120 million. C) The interest rate will fall below 4 percent. D) The quantity of loanable funds demanded by firms will fall below $120 million.
If a perfectly competitive firm has a 70 percent probability of a high demand of $5 and a 30 percent chance of a low demand of $4, what is the firm's expected marginal revenue?
A) $4.50 B) $4.70 C) $1.20 D) $3.50
Willingness to pay
a. measures the value that a buyer places on a good. b. is the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept. c. is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept. d. is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.
A union will try to increase employment for its members as long as the marginal wage is positive.
Answer the following statement true (T) or false (F)