Bank panics can occur in fractional reserve banking systems, but they are less likely to occur when banks are well-regulated and lend prudently. While gold-backed monetary systems may provide more stability, they do not necessarily prevent bank panics from occurring. Therefore, B is the best choice.

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Bank Panics

Question 19

Multiple Choice

Bank panics

A) occur frequently in fractional reserve banking systems.
B) are a risk of fractional reserve banking but are unlikely when banks are highly regulated and lend prudently.
C) cannot occur in a fractional reserve banking system.
D) occur more frequently when the monetary system is backed by gold.

Correct Answer: