Question in reference to Milton Friedman\'s Free to Choose - Anatomy of a Crisis

Question

Question in reference to Milton Friedman's Free to Choose - Anatomy of a Crisis RE Great Depression

Milton Friedman argues that if bank runs start, where depositors are withdrawing money from banks, then the Federal Reserve should: O close the banks experiencing bank runs as these would be the bad and risky banks which should go out of business. O provide liquidity (cash) to the banks to stop bank runs (through loans to the banks). O raise interest rates to reward depositors for the increased risk. O take over management of banks which were experiencing bank runs.

Explanation / Answer

Correct option: (b)

Reason: Freidman believed that the best way to prevent bank runs is to make sure that banks have enough cash or liquidity to meet increasing demand for withdrawls. This will help control the situation of panic and prevent bank runs becoming more serious.

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