Well-functioning financial markets
A) cause inflation.
B) eliminate the need for indirect finance.
C) cause financial crises.
D) produce an efficient allocation of capital.

Question

Quizplus · Accepted Answer

Well-functioning financial markets produce an efficient allocation of capital, meaning that capital is directed towards its most productive uses. This can benefit the overall economy by promoting growth and productivity. Financial markets can also facilitate indirect finance, which can help bridge the gap between savers and borrowers. While financial crises can occur in even well-functioning markets, they are not an inherent feature of such markets. Inflation is not caused by well-functioning financial markets, as inflation is primarily driven by factors such as changes in the money supply and aggregate demand.

Well-Functioning Financial Markets