Question

Intermediation fails when (choose one or more)

a) property rights are insecure

b) interest rates are controlled

c) lending is politicized and banks are government owned

d) banks fail and bank panics ensue

Answer 1

Actually the given four options are reasons for the failure in the intermediation. The given four are correct;

a)property rights are insecure

b)interest rates are controlled

c)lending is politicized and banks are government owned

d)bank fails and bank panic ensue

The above given are actually the four reasons which indicates the failure in the intermediation. So this four options must be chosen.

Because the first reason, property rights are insecure which means that when we invest or save our earnings we have a belief to withdraw it when we are in need of it. But when a situation faced, we are unable to pull out our money. This indicates the failure. Secondly, if the interest rates are controlled that means when it is forced to do this the borrowers will borrow a less. Thirdly, the the politicized lending and banks under the government, will only favors the banks which act upon the political interest and the fairness will be destructed. And finally the banks fail and bank panics ensue, because trust in most important feature of the financial system. When there is Interrupted the investors began to withdraw their savings in large extend.