The Best Way for a Government to Stop the Failure

question 91

Multiple Choice

The best way for a government to stop the failure of one bank from turning into a bank panic is to:

• A) make sure solvent institutions can meet the withdrawal demands of depositors.
• B) declare a bank holiday until solvent banks can acquire adequate liquidity.
• C) limit the withdrawals of depositors.
• D) provide zero-interest rate loans to all banks regardless of net worth.

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Definitions:

Profit Maximization

The strategy of adjusting production and sales to achieve the maximum possible profits.

Input Increases

A situation where the amount, quality, or number of resources used in production grows, potentially leading to an increase in output.

Marginal Product

The additional output that is produced by adding one more unit of a specific input, ceteris paribus.

Production Function

An equation, graph, or table that describes the maximum amount of output a firm can produce from a given set of inputs.