Question

Which of the following statements is TRUE?

A. Bank failures inflict serious financial harm on individual depositors, but fortunately do not harm the macroeconomic stability of the economy.
B. Bank failures inflict serious financial harm on individual depositors
C. Bank failures inflict not only serious financial harm on individual depositors, but also harm the macroeconomic stability of the economy
D. Bank failures only inflict serious financial harm on the macroeconomic stability of the economy.
E. Bank failures do not inflict serious financial harm on individual depositors

Answer 1

Option C

Step-by-step explanation:

The current system of banking in economy is very crucial, most businesses rely on the banking system, in terms of loans, savings and other transactions that will make their business grow fast and targets are meant but at the private and public level of business. So imagine if there are bank failures in providing this services to the businesses ,it will affect quite a number of operations ,intact no only businesses but also individuals that are involved. So not only individuals that make deposits but the macro economies will be affect just like option C explains.

Answer 2

Answer: C. Bank failures inflict not only serious financial harm on individual depositors, but also harm the macroeconomic stability of the economy

Explanation: A bank fails when it can’t meet its financial obligations to creditors and depositors. This could occur because the bank in question has become insolvent, or because it no longer has enough liquid assets to fulfill its payment obligations. When a bank fails, it may try to borrow money from other solvent banks in order to pay its depositors. If the failing bank cannot pay its depositors, a bank panic might ensue in which depositors run on the bank in an attempt to get their money back. This can make the situation worse for the failing bank, by shrinking its liquid assets as depositors withdraw cash from the bank. Also, If banks are short of liquidity, they will be less willing to lend money to firms and consumers. As a result, the firm will reduce investment and employ fewer workers. If there is a significant fall in investment levels, then this will lead to lower economic growth and higher unemployment.