Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Textbook Question
Chapter 28, Problem 33CTQ
The term “moral hazard” describes increases in risky behavior resulting from efforts to make that behavior safer. How does the concept of moral hazard apply to deposit insurance and other bank regulations?
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write 300 words about the term “moral hazard” describes increases in risky behavior resulting from efforts to make that behavior safer. How does the concept of moral hazard apply to deposit insurance and other bank regulations?
Increases in risky conduct as a result of efforts to make that behavior safer are referred to as "moral
hazards." How do deposit insurance policies and other banking rules relate to the idea of moral hazard?
The term “moral hazard” describes increases in risky behavior resulting from efforts to make that behavior safer. How does the concept of moral hazard apply to deposit insurance and other bank regulations? Can you think of any arguments in favor of getting rid of the FDIC? How might doing so improve the safety of banks?
Chapter 28 Solutions
Principles of Economics 2e
Ch. 28 - Why is it important for the members of the Board...Ch. 28 - Given the danger of bank runs, why do banks not...Ch. 28 - Bank runs are often described as self-fulfilling...Ch. 28 - If the central bank sells 500 in bonds to a bank...Ch. 28 - What would be the effect of increasing the banks...Ch. 28 - Why does contractionary monetary policy cause...Ch. 28 - Why does expansionary monetary policy causes...Ch. 28 - Why might banks want to hold excess reserves in...Ch. 28 - Why might the velocity of money change...Ch. 28 - How is a central bank different from a typical...
Ch. 28 - List the three traditional tools that a central...Ch. 28 - How is bank regulation linked to the conduct of...Ch. 28 - What is a bank run?Ch. 28 - In a program of deposit insurance as it is...Ch. 28 - In government programs of bank supervision, what...Ch. 28 - What is the lender of last resort?Ch. 28 - Name and briefly describe the responsibilities of...Ch. 28 - Explain how to use an open market operation to...Ch. 28 - Explain how to use the reserve requirement to...Ch. 28 - Explain how to use the discount rate to expand the...Ch. 28 - How do the expansionary and contractionary...Ch. 28 - How do tight and loose monetary policy affect...Ch. 28 - How do expansionary, tight, contractionary, and...Ch. 28 - Which kind of monetary policy would you expect in...Ch. 28 - Explain how to use quantitative easing to...Ch. 28 - Which kind of monetary policy would you expect in...Ch. 28 - How might each of the following factors complicate...Ch. 28 - Define the velocity of the moneyCh. 28 - What is the basic quantity equation of money?Ch. 28 - How does a monetary policy of inflation target...Ch. 28 - Why do presidents typically reappoint Chairs of...Ch. 28 - In what ways might monetary policy be superior to...Ch. 28 - The term moral hazard describes increases in risky...Ch. 28 - Explain what would happen if banks were notified...Ch. 28 - A well-known economic model called the Phillips...Ch. 28 - How does rule-based monetary policy differ from...Ch. 28 - Is it preferable for central banks to primarily...Ch. 28 - Suppose the Fed conducts an open market purchase...Ch. 28 - Suppose the Fed conducts an open market sale by...Ch. 28 - All other things being equal, by how much will...Ch. 28 - Suppose now that economists expect the velocity of...Ch. 28 - If GDP is 1,500 and the money supply is 400, what...Ch. 28 - If GDP now rises to 1,600, but the money supply...Ch. 28 - If GDP now falls back to 1,500 and the money...
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Similar questions
- What does the term "bank failure" mean? What role does FDIC insurance play? How many banks failures occurred in the United States during the most recent complete calendar year?arrow_forwardExcess reserves are insurance from deposit outflow. Suppose you hold 15 million required reserves and 45 million excess reserves at the central bank. The total interest payment on reserves from the central bank is 0.3%. If you do not hold your excess reserves at the bank, you may take loans and earn 4% in average. What is the cost of holding excess reserve at the central bank?arrow_forwardHow does federal deposit insurance encourage greater risk taking by banks? Could the banking system function without government deposit insurance? How?arrow_forward
- Which banks can choose not to be insured by the FDIC? Banks that are members of the Fed State-chartered banks Credit unionsarrow_forwardIn the absence of limits on the behavior of large intermediaries, how might the perception of institutions being "too-big-to-fail" lead to increased concentration in the banking industry? The safety net alleviates the too-big-to-fail problem, thus increasing concentration in the banking industry. The safety net creates moral hazard problems for big banks by encouraging extremely risky behavior. This puts small banks at a competitive disadvantage, driving them out of the market and leading to an increase in concentration. The safety net encourages larger banks to split into several smaller institutions, thus increasing the concentration in the banking industry. The safety net encourages more banks to enter the market, thus increasing concentration in the industry.arrow_forwardWhy has the number of bank holding companies dramatically increased?arrow_forward
- Which government agency is responsible for handling bank failure? Describe the methods that the government uses to intervene in the case of a bank failure. If you were a major depositor with about $400,000 of deposits at a failed bank, which method would prefer for the government to use? Explain whyarrow_forwardCan the banks make easy profits because the money multiplies? How? Is it fair and efficient? Is the basic structure of banking stable and fair? Could it be different?arrow_forwardWhich of the following would cause banks to increase the amount of excess reserves that they hold? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a b Question 25.14 C d Loans to customers look safe and market interest rates are high compared to the interest rate on excess reserves. The economy is booming and there is a great demand for business loans. Loans to customers look unusually risky or market interest rates are low compared to the interest rate on excess reserves. They anticipate a bank audit.arrow_forward
- The banking system of Canada is based on a fractional reserve system. What dangers does this type of arrangement pose for the safety of the banking system? Also, bankers have a reputation for conservatism in politics, dress, and business affairs. Is there an economic rationale for this conservatism? Explain.arrow_forwardWhat effect has the presence of federal deposit insurance had on the banking industry? Banks have made riskier loans. Banks have made it more difficult for customers to qualify for loans. Banks now hold more excess reserves. Depositors have become more vigilant in monitoring the decisions made by managers of their banks.arrow_forwardA financial depository institution's reserve requirement is a specified percentage of: Group of answer choices deposits that must be kept as actual reserves. regulated reserves provided by the federal government. required reserves that must be kept as part of actual reserves. actual reserves kept at the federal reserve. excess reserves that must be backed as required reserves.arrow_forward
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