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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Given the danger of bank runs, why do banks not keep the majority of deposits on hand to meet the demands of depositors?

To determine

The reasons behind banks do not keep the majority of deposits on hand to meet the demands of depositors, given the danger of bank runs.

Explanation

A financial institution that accept deposits from the public and creates credit is known as bank. Money deposited in the bank accounts, is later utilized to loan out to other businesses, individuals, and banks. Hence, banks, loans, and money are all interconnected to each other. When the interlocking system of banks, loans, and money works well, economic transactions occur smoothly.

If the banking and money system does not operate smoothly, any economy can easily suffer prolonged inflation or fall into recession...

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