Bank runs Group of answer choices a. will affect neither the money supply nor the money multiplier. b. increase the money supply. c. can be neither prevented nor mitigated by the Federal Reserve. d. are a problem because banks only hold a fraction of deposits as reserves.

The correct answer is letter "D": are a problem because banks only hold a fraction of deposits as reserves.

Explanation:

Bank runs occur when account holders of a financial institution massively withdraw their deposits under the fear that the bank will become insolvent. The situation could get to the point in which the bank uses all its reserves which would lead them to default.  

In the U.S. banks with deposits between $16 and $122.3 million are required to have a minimum reserve of 3% while banks with reserves greater than $122.3 million 10%. The rest of the money is used by banks for reinvestment.

rational decision making is a multi-step process for making choices between alternatives. the process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. the word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense.

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