While Deposit Insurance Was Designed to Make the Banking Industry

question 136

Multiple Choice

While deposit insurance was designed to make the banking industry more stable,it contributed to the banking crisis of the 1980s because:

• A)the FDIC only insured commercial banks.
• B)the ceiling on insured deposits was too low.
• C)too many banks were insufficiently insured.
• D)depositors became too complacent about the risks that the banks were taking.
• E)unsafe banks were "kicked out" of the deposit insurance system.

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Definitions:

Sealed-Bid

A bidding process where all bidders simultaneously submit their bids in sealed envelopes, and the bids are not revealed until all bids have been submitted.

Second-Price Auction

An auction format in which the highest bidder wins the item, but the price paid is the second-highest bid.

English Auction

A type of auction where bidders openly bid against one another with each subsequent bid being higher than the previous bid, and the highest bidder wins.

Reserve Price

The minimum price at which a seller is willing to sell an item in an auction, below which the item will not be sold.