Question

The system to prevent bank runs from destroying the economy consists of how many main features?

1) 2
2) 3
3) 4
4) 5

Answer 1

The system to prevent bank runs has three main features: the establishment of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Federal Reserve’s role in conducting monetary policy.

Step-by-step explanation:

The system to prevent bank runs from destroying the economy has three main features. First, the Federal Reserve System (the Fed) was established as the central bank of the United States to stabilize the financial system by influencing monetary policy, supervising and regulating banks, and providing financial services like loans. Second, the introduction of the Federal Deposit Insurance Corporation (FDIC) ensures depositors' accounts up to a certain amount, mitigating the risk for individuals and reducing the panic that triggers bank runs. Lastly, the Federal Reserve conducts monetary policy to control the money supply and interest rates, which additionally serves to maintain the stability of the financial system.

Safeguarding the financial system involves not just these features but also the day-to-day operations of the Fed, such as maintaining the payments system and providing services to the government. Moreover, the longer terms of the Board and their insulation from political forces also contribute to the stability of the financial system by preventing drastic swings in monetary policy with every new administration.