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:

Down Payment

An initial payment made when purchasing an item on credit, typically a percentage of the purchase price.

Savings

Money set aside from income for future use, typically held in secure or low-risk savings accounts or investment products to preserve or grow wealth.

Frequency of Compounding

The number of times interest is added to the principal balance of an investment or loan per time period, affecting the total interest earned or paid.

Future Value

The value of a current asset at a specified date in the future based on an assumed rate of growth.