1.2.

a. Who is more likely to take bigger risks:

a trapeze artist with a safety net beneath or a trapeze artist without a safety net?

b. Who is more likely to take bigger risks with his deposits: a bank CEO in a country where there is a lender oflast resort or a bank CEO in a country where there is no lender oflast resort?

c. Who is more likely to spend more time searching for a well-run, safe bank: a depositor living in a country with govern ment-run deposit insurance or a depositor living in a country without government-run deposit insurance?

d. Do government-run central banks and deposit insurance both increase moral hazard problems, both decrease moral hazard problems, or do they push in different directions when it comes to moral hazard?

The Federal Reserve System and Open Market Operations • CHAPTER 1 5 • 339