Asked by Nicole Mowatt on May 01, 2024
Verified
Bank runs are only a concern under a fractional-reserve banking system.
Fractional-reserve Banking
A banking system where banks hold only a fraction of deposits as reserves and lend out the remainder, thereby creating additional money supply.
Bank Runs
Situations where a large number of bank customers withdraw their deposits simultaneously due to fears that the bank will become insolvent.
- Comprehend the principle and consequences of bank runs on the economic system and its overall financial stability.
Verified Answer
GC
Gracie CollinsMay 02, 2024
Final Answer :
True
Explanation :
Bank runs primarily occur in a fractional-reserve banking system, where banks hold only a fraction of their depositors' money in reserve, lending out the majority. If many depositors simultaneously demand their money back, the bank may not have enough liquid assets to meet these demands, leading to a bank run.
Learning Objectives
- Comprehend the principle and consequences of bank runs on the economic system and its overall financial stability.