Depositors Rush To Their Bank To Withdraw Their Funds. Here is a quick Quizlet matching quiz covering ten concepts associated with banking in financial markets Subscribe to email updates from tutor2u Economics Join 1000s of fellow Economics teachers and students all getting the tutor2u Economics team's latest resources and support delivered fresh in their inbox every morning. Both Keynesians and supply-siders believe a tax cut will lead to growth: But Keynesians believe it works through aggregate demand whereas supply- siders believe it works though incentive effects. If two economies are identical (with the same population growth rates and rates of technological progress), but one economy has a lower saving rate, then the steady-state level of income per worker in the economy with the lower saving rate: Will be at a lower level than in the steady state of the high-saving economy, The majority of empirical evidence supports the hypothesis that economies that are open to trade ____ than comparable closed economies. In the Solow growth model, with a given production function, depreciate rate, saving rate, and no technological change, higher rates of population growth produce: Higher-steady state growth rates of total output. Uncommon Because Of The High Required Reserve Ratio. Some economists believe that the runs on banks that took place between 1930 and 1933, eventually leading to the Great Depression are responsible for a lot of bank defaults. Bank runs can turn into system-wide bank panics because customers have a difficult time distinguishing insolvent banks from solvent ones. Total factor productivity may be measured by: Subtracting the rate of growth of capital input, multiplied by capital's share of output, plus the rate of growth of labor input, multiplied by labor's share of output, from the rate of growth of output. It looks like your browser needs an update. An extra unit of capital per worker increases output per worker: (Exhibit: Output, Consumption, and Investment) In this graph, when the capital-labor ratio is OA, AB represents: Investment per worker, and BC represents consumption per worker. depository banks, money market managers withhold lending to other financial institutions investment banks, depositors withdraw money from checking accounts investment banks, Federal Reserve raises interest rates depository institutions, Federal Reserve raises interest rates If the Japanese production function is Cobb-Douglas with capital share 0.3, output growth is 3 percent per year, depreciation is 4 percent per year, and the capital-output ratio is 2.5, the saving rate that is consistent with steady-state growth is: If the per-worker production function is y = Ak, where A is a positive constant, then the marginal product of capital: Assume that an economy described by the solow model is in a steady state with output and capital growing at 3 percent and labor growing at 1 percent. Common Because Of The Low Required Reserve Ratio. Depositors leave their deposits in the bank. Learn more. It looks like your browser needs an update. Helps understand bank runs. Bank run (bank panic) A series of unexpected cash withdrawals caused by a sudden decline in depositor confidence or fear that the bank will be closed by the chartering agency, i.e. Maria makes a deposit of $20,000, and the bank loans $18,000 to Mark so he can buy a car ANS: F PTS: 1 DIF: Easy REF: p. 228 NOT: Macro TB_10-165 14. The capital share is 0.3. An increase in consumer saving for any given level of income will shift the: An economic change that does not shift the aggregate demand curve is a change in: Starting from a short-run equilibrium greater than the natural rate of output, as the economy returns to a long -run equilibrium: output will decrease, but the price level will increase. Uncommon Because Of FDIC Insurance. Make the financial system more stable; lead to higher costs. The version of Okun's law studied in Chapter 10 assumes that with no change in unemployment, real GDP normally grows by 3 percent over a year. If the short-run aggregate supply curve is horizontal, an increase in union aggressiveness that pushes wages and prices up will result in ____ prices and _____ output in the short run. Banking is all about the managing, saving and lending money, credit/ loan and other financial transactions. Aggregate demand is given by curve AD0, and SRAS and LRAS represent, respectively, short-run and long-run aggregate supply. The Federal Reserve obliges banks to hold a certain amount of cash in reserve so that they never run … continuing to employ workers during a recession to ensure they will be available in the recovery. A possible externality associated with the process of accumulating new capital is that: One explanation for greater economic development in moderate versus tropical climates is that institutions established by colonial settlers in moderate climate ____, while institutions established by colonists in tropical climates ____. Which of the following changes would bring the U.S capital stock, currently below the Golden Rule level, closer to the steady-state, consumption-maximizing level? If the production function exhibits increasing returns to scale in the steady state, an increase in the rate of growth of population would lead to: Growth in total output and growth in output per worker. If Y is output, K is capital, u is the fraction of the labor force in universities, L is labor, and E is the stock of knowledge, and the production Y = F(K,(1 - u) EL) exhibits constant returns to scale, then output (Y) will double if: Empirical results justify substantial government subsidies to research based on the finding that the: Private return to research is less than the social return to research. To ensure the best experience, please update your browser. Bank run (bank panic) A series of unexpected cash withdrawals caused by a sudden decline in depositor confidence or fear that the bank will be closed by the chartering agency, i.e. If the short-run aggregate supply curve is horizontal and the Fed increases the money supply, then: Output and employment will increase in the short run. Investors with ST liquidity needs and borrowers with LT project horizons. The economy moves first to point ______ and then, in the long run, to point ______. Scheduled maintenance: Saturday, December 12 from 3–4 PM PST. The growth-accounting equation indicates that the contributions to growth of capital, labor, and total factor productivity are: 0.9 percent, 0.7 percent, and 1.4 percent, respectively. "Banks" pay insurance premiums - in reality, depositors and borrowers most likely carry most of this weight. The current banking regulation in the United States holds that the banks and the economy should align in order to protect consumers from the impact of bank runs. Businesses borrow money to finance LT project. A banking panic or bank panic is a financial crisis that occurs when many banks suffer runs at the same time, as a cascading failure. An illiquid bank can become insolvent when it: Sells assets at fire-sale prices to meet liquidity demands. According to the quantity theory of money, when velocity is constant, if output is higher,______ real balances are required, and for fixed M this means ___ P. Assuming velocity is constant, the aggregate demand curve tells us possible: Combinations of P and Y for a given value of M. The vertical long-run aggregate supply curve satisfies the classical dichotomy because the natural rate of output does not depend on: during which prices are sticky and cyclical unemployment may occur. Your bank confirms that money is available in your account and then adds this amount to an electronic transfer of funds that it wires to the store each week. D. Dividing the bank's net profit after taxes by the sum of the bank's assets and its liabilities A. In the Keynesian-cross model, actual expenditures differ from planned expenditures by the amount of: When planned expenditure is drawn on a graph as a function of income, the slope of the line is: The equilibrium of the Keynesian cross shows: Equality of planned expenditure and income in the short run. So even if the bank is healthy, it will not be able to pay all of its depositors at once. We hope it helps you all.This Quiz deals with … Here we give a set of questions. Proponents of restricting the size of financial institutions believe this policy will _____, while opponents believe this policy will _____. Start studying Bank Runs. Over the business cycle, investment spending ______ consumption spending. Dividing the bank's net profit after taxes by the bank's capital A late-night news report says the president of a local bank is about to be arrested for embezzling money from the bank at which he works. The Bank of Canada is a privately operated commercial bank. Bank reserves are essentially an antidote to panic. Funds flow directly between savers and investors in financial ____ and flow indirectly between savers and investors through financial ____. If the demand function for money is M/P = 0.5Y - 100r, then the slope of the LM curve is: If money demand does not depend on the interest rate, then the LM curve is ____, and ____ policy has no effect on output. A bank-run occurs when a large number of depositors queue outside a bank, and ask for their money back. BANK RUNS: CAUSES, BENEFITS, AND COSTS George G. Kaufman Introduction Bankruns haveabadreputation. In the Solow growth model with population growth nut no technological progress, the steady-state amount of investment can be thought of as a break-even amount of investment because the quantity of investment just equals the amount of: Capital needed to replace depreciated capital and to equip new workers. Purchasers of bonds issued by companies are _____ of the company, while purchasers of shares of stock issued by a company are _____ of the company. Current technology allows large bank depositors to withdraw their funds electronically at a moment’s notice. B) the solvency of the bank. In the Solow growth model of an economy with population growth but no technological change, if population grows at rate n, then capital in the steady state grows at rate ____, and output grows at rate ____, in the steady state. In the IS-LM model when M/P rises, in short-run equilibrium, in the usual case the interest rate _____ and output _______. We have given the explanation as well. (Exhibit: Keynesian Cross) In this graph, the equilibrium levels of income and expenditure are: In the Keynesian-cross model, if taxes are reduced by 100, then planned expenditures ______ for any given level of income. Learn vocabulary, terms, and more with flashcards, games, and other study tools. To ensure the best experience, please update your browser. 2. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will: Assume that the money demand function is (M/P)d = 2,200 - 200r, where r is the interest rate in percent. Normally, customers and depositors hear rumors about the bad state of their bank, and decide that it is a good idea to take their money out of the bank. Oh no! many depositors withdraw cash almost simultaneously. Keep your own records to compare with your financial institution's records. Bank of the United States, central bank chartered in 1791 by the U.S. Congress at the urging of Alexander Hamilton and over the objections of Thomas Jefferson.The extended debate over its constitutionality contributed significantly to the evolution of pro- and antibank factions into the first American political parties—the Federalists and the Democratic-Republicans, respectively. 1  2  The production functions in both economies exhibit diminishing marginal product of capital. The Bank of Canada was created in 1934 in the wake of the Great Depression. If the Federal Reserve increases the money supply, then ______ increase(s) in the short run and ______ increase(s) in the long run. Implied in the definition is that deposits (very liquid liabilities) leave faster than the bank is able to sensibly liquidate its illiquid assets. If the per-worker production function is give by y=k^1/2, the saving rate(s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is: Assume that two economies are identical in every way except that one has a higher saving rate. This … What matters most during a bank run is: A) the liquidity of the bank. Scheduled maintenance: Saturday, December 12 from 3–4 PM PST. If the price level is fixed at P=2, and the Fed wants fix the interest rate at 7 percent, it should set the money supply at: (Exhibit: IS-LM Fiscal Policy) Based on the graph, starting from equilibrium at interest rate r1 and income Y1, a decrease in government spending would generate the new equilibrium combination of interest rate and income: Using the IS-LM analysis, if the LM curve is not horizontal, the multiplier for an increase in government spending is ______ for an increase in government purchases using the Keynesian-cross analysis. A bank run occurs when depositors suspect that a bank may go bankrupt and, therefore, "run" to the bank to withdraw their deposits. many depositors withdraw cash almost simultaneously. Bank run is the phenomenon that involves accelerated withdrawal from commercial banks by the public in certain economically unstable situations. This is called the monetary transmission mechanism. A bank run occurs due to customer panic rather than actual insolvency on the part of the bank. Check your bank statement once a month. When all or many depositors simultaneously demand their deposited funds. Question: Question 29 Today, Bank Runs Are: Common Because The FDIC Is Nearly Bankrupt. C. Now assume that the aggregate demand curve shifts so that it is represented by AD1. To determine whether an economy is operating at its Golden Rule level of capital stock, a policy maker must determine the steady-state saving rate that produces the: Suppose an economy is initially in a steady state with capital per worker below the Golden Rule level. Protected property rights; were extractive and authoritarian, Endogenous growth theory rejects the assumption of exogenous. Ashoutof“run” strikes the same fear into most of us as a … A bank provides financial assistance by accepting the deposits from the public and creating credit. A bank holiday is a business day during which financial institutions are closed. C) the number of depositors. bank run definition: a period when many people take their money out of a bank because they are afraid the bank will lose…. Expert Answer 100% (1 rating) Previous question Next question Get more help from Chegg. How Bank Reserves Work . A bank run is the sudden withdrawal of deposits of just one bank. The money hypothesis suggests that the Great Depression was caused by a: If real money balances enter the IS-LM model both through the theory of liquidity preference and the Pigou effect, then a fall in the price level will shift: In the IS-LM model, starting with zero expected inflation, if expected inflation becomes negative, then the: during the financial crisis of 2008-2009, many financial institutions stopped making loans even to creditworthy customers, which could be represented in the IS-LM model as an: the interest sensitivity of investment and the marginal propensity to consume. In the solow model with technological progress, the steady-state growth rate of output per effective worker is: If two economies are identical (including having the same saving rates, population growth rates, and efficiency of labor), but one economy has a smaller capital stock, then the steady-state level of income per worker in the economy with the smaller capital stock: Will be at the same level as in the steady state of the high capital economy. Customers generally request cash and may put the money into government bonds or other institutions they believe to be safer. If the unemployment rate rose by 2 percentage points over a year, Okun's law predicts that real GDP would: A decline in the Index of Supplier Deliveries is typically an indicator of a future _____ in economic production, and a narrowing of the interest rate spread between the 10-year Treasury note and 3-month Treasury bill is typically an indicator of a future _____ in economic production. Assume that the economy starts from long-run equilibrium. If the saving rate increases to a rate consistent with the Golden Rule, then in the transition to the new steady state consumption per worker will: First fall below and then rise above the initial level. Customers rush to the bank to take out their money as quickly as possible to avoid losing it. If planned investment is 100 and T is 100, then the level of G needed to make equilibrium Y equal 1,000 is: Assume that the money demand function is (M/P)d = 2,200 - 200r, where r is the interest rate in percent. Ideally, the purpose of providing funds to insolvent banks beyond required insurance payouts is to: The government purchasing ownership stakes in a faltering financial institution in order to prop up the financial system is an example of: The purpose of the Financial Services Oversight Council, which was created by the Dodd-Frank Act, is to: Coordinate activities of the various regulator agencies. As you know, most of a bank's deposits have been loaned out, and only a fraction of them are on reserve. D) All of the above. (Exhibit: Shift in Aggregate Demand) In this graph, initially the economy is at point E, with price P0 and output Y. A bank run occurs when s… A traditional bank run is a run on _____ and a modern day bank run occurs when _____. In the IS-LM model when the Federal Reserve decreases the money supply, the public _____ bonds, and the interest rate____, leading to a(n) ____ investment and income. Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland. Oh no! The Federal Deposit Insurance Corporation FDIC. There are several schemes offered by banks like savings accounts, home mortgages, business loans, and car loans etc. They can do so all at the same time, without anyone’s knowledge, in what is called a silent run. In fact, bank runs The United States has not seen a major bank run in recent history, but in the United Kingdom, a bank called Northern Rock experienced a run in 2007 and, as a result, was eventually taken over by the government. What is the definition of bank run? A decrease in the nominal supply, other things being equal, will shift the LM curve: The IS and LM curves together generally determine: Equilibrium levels of income and interest rates are____ related in the goods and services market, and equilibrium levels of income and interest rates are _____ related in the market for real money balances. According to the Solow growth model, in the steady state the country with the higher saving rate will have _____ level of output per person and ______ rate of growth of output per worker compared to the country with the lower saving rate. A person with health insurance rides a motorcycle without wearing a helmet. In the Solow growth model, if investment exceeds depreciation, the capital stock will________, and output wil _______, until the steady state is attained. In the short run, a favorable supply shock causes: If a change in government regulations allows banks to start paying interest on checking accounts, this will: If central bank A cares only about keeping the price level stable and central bank B cares only about keeping output at its natural level, then in response to an exogenous decrease in the velocity of money: Both Central Bank A and Central Bank B should increase the quantity of money. A bank run occurs when there is a sudden demand to withdraw money from a bank, that the commercial bank struggles to meet. Your bank receives notice that funds need to be withdrawn from your checking or savings account at the end of the business day. The Economics Glossary gives the following definition for a bank run: "A bank run takes place when the customers of a bank fear that the bank will become insolvent. (Exhibit: Policy Interaction) Based on the graph, starting from equilibrium at interest rate r3, income Y2, IS1, and LM1, if there is an increase in government spending that shifts the IS curve to IS2, then in order to keep the interest rate. if consumption is given by C=200+0.75(Y-T) and investment is given by I=200-25r, then the formula for the IS curve is: lowers the interest rate and increases income in the short run, but leaves both unchanged in the long run. If the labor force is growing at a 3 percent rate and the efficiency of a unit of labor is growing at a 2 percent rate, then the number of effective workers is growing approximately at a rate of: In the Solow growth model with population growth and labor-augmenting technological change, the break-even level of investment must cover, Depreciating capital, capital for new workers, and capital for new effective workers. In the IS-LM model when M remains constant but P rises, in short-run equilibrium , in the usual case the interest rate _____ and output ____. A bank run occurs when a large number of customers withdraw their deposits from a bank at the same time, usually because of fears that a bank is or will become insolvent. Federal Deposit Insurance has ended the phenomenon of bank runs." Commercial banks make money by providing and earning interest from loans such … Start studying Midterm 2 Eco 3203. (Exhibit: Steady-State Consumption II) The Golden Rule level of steady-state consumption per worker is: If an economy is in a steady state with no population growth or technological change and the marginal product of capital is less than the depreciation rate: Steady-state consumption per worker would be higher in a steady state with a lower saving rate. Then the immediate impact will be that: Total output will fall, but output per worker will rise. Whether you are a student of economics or accounting is your course of study, banking is of vital importance. In the Solow growth model, increases in capital_____ output and _____ the amount of output used to replace depreciating capital. Which of the following is an example of a demand shock? A commercial bank is where most people do their banking. A bank run is when a bank's depositors rush to withdraw their funds from the bank. The money supply M is 2,000 and the price level P is 2. If an economy moves from a steady state with positive population growth to a zero population growth rate, then in the new steady state, total output growth will be ____, and growth of output per person will be ____. If a short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run prices will ______ and output will ______. A situation in which one party to an economic transaction has more knowledge about the transaction than the other is called: Which of the following is an example of moral hazard? Ask your financial institution to notify you when you are close to $0 in your account. All of the following are examples of financial intermediaries expect: Risk that affects many businesses at the same time is called ____ risk, while risk associated with individual businesses is called ____ risk. Even a healthy bank, if thought to be insolvent, can become illiquid. bank run Click card to see definition 👆 a phenomenon when many of a bank's depositors try to withdraw their funds at the same time due to fears of a bank failure Click again to see term 👆 1. Get help on all such topics with bank run … Governments can red ice the problem of moral hazard by: An asset-price bubble bursts If there is: A panic cycle of asset sales and falling asset prices. This problem has been solved! Bank holidays are most relevant for physical branch locations because many online banking services continue to … A bank run is typically the result of panic rather than true insolvency. In the solow growth model with population growth but no technological progress, when the economy finds itself at the Golden rule steady state, the marginal product of capital minus the rate of depreciation will equal: Assume that a war reduces a country's labor force but does not directly affect its capital stock. all market participants are choosing a best strategy given that everyone else is choosing a best strategy. A difference between the economic long and the short run is that: Demand can affect output and employment in the short run, whereas supply is the ruling force in the long run. Using the Keynesian-cross analysis, assume that the consumption function is given by C = 200 + 0.7(Y - T). When a significant quantity of deposits are withdrawn from a bank in a short period of time. Measures of average workweeks and of supplier deliveries (vendor performance) are included in the index of leading indicators, because shorter workweeks tend to indicate ______ future economic activity and slower deliveries tend to indicate ______ future economic activity. What is a bank run? The first signs of ‘bank panic’ will encourage other depositors to also try and withdraw their savings, causing a further ‘run on the bank.’ In a bank run, investors are trying to get back their deposits before the bank goes out of business and depositors can no longer access their deposits. To the extent that risky mortgage- backed securities that were sold to buyers who were not fully aware of the risks contributed to the financial crisis of 2008-2009, blame for this action lies with: During the 2008-2009 period, the conventional monetary policy response was to ____ the target deferral funds rate, while the conventional fiscal policy response was to ____ taxes and to ____ government spending. A. ANS: T PTS: 1 DIF: Easy REF: p. 228 NOT: Macro TB_10-166 15. The IS curve plots the relationship between the interest rate and ______ that arises in the market for ______. Individual Depositors suffer from ST liquidity needs. The introduction and greater availability of credit cards. Dear Aspirants, Welcome to D2G’s Banking Quiz. The mortgage defaults during the 2008-2009 financial crisi severely reduced the capital positions of: A credit crunch reduces aggregate demand by: Reducing consumption and investment spending. A run on a bank occurs when a large number of depositors, fearing that their bank will be unable to repay their deposits in full and on time, simultaneously try to withdraw their funds immediately. B. As more people withdraw money, the risk of bankruptcy increases and this triggers even more withdrawals. Learn vocabulary, terms, and more with flashcards, games, and other study tools. A bank run that emanates from public fear and that pushes a bank into actual bankruptcy is an example of a self-fulfilling prophecy. Bank Runs Occur When People Fear That Their Bank Has Become (Click To Select)insolventilliquid. A bank run triggered by fear that pushes a bank into actual insolvency represents a classic … Bank panics because customers have a difficult time distinguishing insolvent banks from solvent ones analysis, that... Own records to compare with your financial institution 's records ; lead to higher COSTS even... To avoid losing it were extractive and authoritarian, Endogenous growth theory rejects the of!: Total output will fall, but output per worker will rise ) the of. In capital_____ output and _____ the amount of output used to replace depreciating capital several schemes offered by banks savings. Triggers even more withdrawals occurs when there is a business day during which financial institutions are.! And COSTS George G. 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