When assessing the effects of regulation of the financial system, we can say that regulation
A)sometimes reduces the ability of the financial system to provide risk-sharing, liquidity, and information services.
B)has always had the main goal of increasing the ability of the financial system to provide risk-sharing, liquidity, and information services.
C)has always been directed toward the maintenance of financial stability.
D)has largely been discontinued since 1980.

Question

Quizplus · Accepted Answer

While regulation is necessary to maintain financial stability and protect consumers, it can also have unintended consequences. Sometimes, regulations can hinder the ability of the financial system to provide risk-sharing, liquidity, and information services. For example, regulations can increase compliance costs and reduce incentives for innovation, ultimately limiting the availability of financial services. Therefore, option A is the best choice. Options B, C, and D are not accurate, as they misrepresent the goals and history of financial regulation.

When Assessing the Effects of Regulation of the Financial System