Why does the fdic place a limit on the amount of money it will insure? a. the fdic has only limited reserves. b. limiting the amount of money insured encourages people with a large amount of money to spread their money out among different banks, which stimulates the economy. c. the fdic believes that insuring too much money encourages reckless investing. d. the limit prevents the money used to replace lost deposits from being taxed.

The correct answer is B.

Step-by-step explanation:

FDIC : The Federal Deposit Insurance Corporation (FDIC) is an independent federal agency insuring deposits in U.S. banks and reduces bank failures.It was created to maintain public confidence and encourage stability in the financial system through the promotion of good banking practices.

a) FDIC has no limited reserves as it insures limitless deposits in banks.(discarded)

b) As the main aim is to encourage stability in the financial system through promotion for stimulating the economy, so it places a limit on the amount of money insured.(accepted)

c) It encourages investing so why FDIC will place a limit to control investing.(discarded)

d) In FDIC, the taxes on lost deposits are independent of the limit of money insured.(discarded)

So, the correct answer is B.

The option b is correct.

The FDIC place a limit on the amount of money it will insure to encourage people with a large amount of money to spread their money out among different banks  which stimulate the economy.

Further explanation:

The deposit amount that is insured by the FDIC is $250,000 per insured bank, per depositor, and per ownership category. The limit is placed so that the depositors spread their money across various banks and financial institutions that help to simulate the economy.

Justification for the correct and incorrect

a.

The FDIC has only limited reserves: This option is incorrect.

The FDIC does not have limited reserve because it is financed by the premium received from insured bank and income from investment in treasury securities.

b.

Limiting the amount of money insured encourages people with a large amount of money to spread their money out among different banks, which stimulates the economy: This option is correct.  

The deposit amount that is insured by the FDIC is $250,000 per insured bank, per depositor, and ownership category. The limit is placed so that the depositors spread their money across various banks and financial institutions that help to simulate the economy.

c.

The FDIC believes that insuring too much money encourages reckless investing: This option is incorrect.  

The FDIC does not have any belief that insuring a higher amount of money will encourage thoughtless investing. The limit is placed in order to spread investment across different bank.  

d.

The limit prevents the money used to replace lost deposits from being taxed: This option is incorrect.  

The limit does not prevent the money that is used to repay lost deposits from becoming taxable but stimulates the economy.

Learn more:

1. Amount insured in FDIC

2. Learn more about the car insurance

3. Learn more about the purchase and lease of the car

Answer details:

Grade: High School

Subject: Business Studies

Chapter: Insurance

Keywords: the FDIC place a limit on the amount of money it will insure, the FDIC has only limited reserves, limiting the amount of money insured encourages people with a large amount of money to spread their money out among different banks, which stimulates the economy, the FDIC believes that insuring too much money encourages reckless investing, the limit prevents the money used to replace lost deposits from being taxed.

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