Explain why depository institutions receive a disproportionate amount of attention from government regulators (compared to most other industries).
What will be an ideal response?
Depository institutions receive this attention because of their central role in the economy and their unique problems. We all rely heavily on banks for access to the payments system and this makes them unique among financial institutions. Furthermore, banks are prone to runs because they hold illiquid assets to back up liquid liabilities. This again makes banks unique compared to other financial institutions. Finally, banks are linked to each other both on their balance sheets and in their customers' minds. Bank failures can be contagious.
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Refer to Scenario 18.1. When Curly made the loans to Moe, Larry, and Shemp, there were 500 coins' worth of receipts, so in total, the receipts were ________ backed by gold
A) 20% B) 40% C) 50% D) 100%
According to rational expectations,
A) the Fed should focus its policies on interest rates. B) the Fed should focus its policies on inflation. C) the Fed should focus its policies on unemployment. D) the Fed is unable to influence real economic activity.