CHAPTER 27THE MONETARY SYSTEM623policy of government deposit insurance has costs: Bankers whose depositsare guaranteed may have too little incentive to avoid bad risks when makingloans. (This behavior is an example of a phenomenon, introduced in the pre-ceding chapter, called moral hazard.) But one benefit of deposit insurance is amore stable banking system. As a result, most people see bank runs only in themovies.QUICK QUIZ:Describe how banks create money. ◆If the Fed wantedto use all three of its policy tools to decrease the money supply, whatwould it do?CONCLUSIONSome years ago, a book made the best-seller list with the title Secrets of the Temple:How the Federal Reserve Runs the Country.Although no doubt an exaggeration, thistitle did highlight the important role of the monetary system in our daily lives.Whenever we buy or sell anything, we are relying on the extraordinarily useful so-cial convention called “money.” Now that we know what money is and what de-
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