Why Might Monetary Policy Authorities Be Concerned When Non-Bank Financial

question 174

Multiple Choice

Why might monetary policy authorities be concerned when non-bank financial intermediaries account for a growing share of an economy's financial assets?

• A) Monetary policy authorities fear that this situation might erode the value of the U.S. dollar in foreign exchange markets.
• B) Monetary policy authorities are concerned that this situation might promote income inequality since high income individuals are more likely to use the services of non-bank financial intermediaries, compared to low-income individuals.
• C) Monetary policy authorities fear that this situation might lessen their ability to control money supply because non-bank financial intermediaries are not as heavily regulated as banks.
• D) It will be more difficult for monetary policy authorities to monitor those assets that are most closely related to the level of economic activity.

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Definitions:

Costs

The outlay or expenditure (monetary or otherwise) incurred by a business or individual in the process of producing or offering goods and services.

Benefits

The advantages or positive outcomes that come from specific actions, policies, or investments.

Principal-Agent Problem

The conflict that arises when the goals of principals, such as shareholders, differ from those of agents who make decisions on behalf of the principals, like executives.

Democratic Government

A form of government in which power is vested in the hands of the people, who can vote to elect their leaders and influence legislation.