Bank depositors in the United States are all financially protected against bank failure because the government insures all individuals’ bank deposits. An economist argues that this insurance is partly responsible for the high rate of bank failures, since it removes from depositors any financial incentive to find out whether the bank that holds their money is secure against failure. If depositors were more selective, then banks would need to be secure in order to compete for depositors’ money.
Which of the following, if true, most seriously weakens the economist’s argument?

Question

Examsnet · Accepted Answer

Correct Answer is :  When the government did not insure deposits, frequent bank failures occurred as a result of depositors’ fears of losing money in bank failures.

GMAT Verbal Reasoning Practice Test 6