Moral hazard problem in the banking industry

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Reference no: EM131379938

Discuss the validity/invalidity of the following statements.

(a) If reserve requirements were set equal to 100 percent, there would be no moral hazard problem in the banking industry.

(b) If the reserve requirements on all deposits were set equal to 0, then the Federal Reserve would lose control of the money supply.

(d) If limits on federal deposit insurance were decreased, then the money supply would likely increase.

(e) In fulfilling its role as the “lender of last resort” the Federal Reserve adds to the adverse selection problem in banking.

(f) A monetary policy that tries to minimize fluctuations in interest rates leads to a pro-cyclical monetary policy, thereby increasing the amplitude of the business cycle.

Reference no: EM131379938

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