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.

Question

Quizplus · Accepted Answer

When non-bank financial intermediaries account for a growing share of an economy's financial assets, monetary policy authorities may be concerned that their ability to control money supply is lessened because non-bank financial intermediaries are not as heavily regulated as banks. This can lead to financial instability if these intermediaries engage in risky lending practices.

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