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In: Economics

Discuss the ramifications of the FDIC reducing deposit insurance limits to $25,000.

Discuss the ramifications of the FDIC reducing deposit insurance limits to $25,000.

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Expert Solution

If the insurance amount is reduced to level of $25,000, it is highly likely that the overall deposits would reduce because depositors will now deposit less money in the bank. With lower deposits in the banking system, it may affect the monetary base and the money supply in the economy. this will happen because banks will find themselves short of reserves which can be used as loans. There will be an increase in the rate of interest. In short to medium term this can also damage the growth rate, reducing the level of GDP.

Rahul Sunny answered 2 years ago
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