Question

5. Because _____ depositors are fully​ insured, they have _____ incentive to withdraw their money and cause their bank to fail. This encourages _______ by bank managers as depositors are protected ______ how the bank actually performs.

6. From this​ perspective, why might there be too few bank failures as the result of deposit​ insurance?

A. Banks are prevented from taking on risks that might cause them to fail.

B. Banks are so large now that they are too big to fail.

C. Rather than let banks​ fail, the FDIC steps in to minimize the amount of money it will have to pay out.

D.Conservative money management on the part of bank managers reduces the risk of failing.

7. In what sense might deposit insurance be considered a federal subsidy for​ banks?

A. FDIC insurance provides cash subsidies to banks in times of trouble.

B. FDIC insurance is backed by the full faith and credit of the United States government.

C. FDIC insurance is paid for with federal tax dollars.

D. FDIC insurance protects every dollar deposited in a bank.

8. Despite these potential​ drawbacks, economists and members of Congress overwhelmingly support deposit insurance for all of the following​ reasons, except:

A. FDIC limits the effect on the economy when a bank fails.

B. FDIC protects every dollar a customer has in a bank.

C. FDIC promotes public confidence in the U.S. financial system.

D. FDIC monitors and addresses risks to deposit insurance funds.

Answer 1

5. Because bank depositors are fully​ insured, they have weak incentive to withdraw their money and cause their bank to fail. This encourages lending by bank managers as depositors are protected irrespective how the bank actually performs.

6. From this​ perspective, why might there be too few bank failures as the result of deposit​ insurance?

Answer- The correct Option is C. Rather than let banks​ fail, the FDIC steps in to minimize the amount of money it will have to pay out.

The other choices A,B and D are incorrect.

7. In what sense might deposit insurance be considered a federal subsidy for​ banks?

Answer- The correct options are B. FDIC insurance is backed by the full faith and credit of the United States government.

The other choices A,C and D are incorrect.

8. Despite these potential​ drawbacks, economists and members of Congress overwhelmingly support deposit insurance for all of the following​ reasons, except:

Answer- The correct Choice is B. FDIC protects every dollar a customer has in a bank.

All the other choices A,C and D are all the reasons why economists and members of Congress overwhelmingly support deposit insurance.