Chapter 8, Problem 10Q

To determine

What steps can the government take to reduce asymmetric information problems and help the financial system function more smoothly and efficiently?

Concept Introduction:

Asymmetric information in a debt contract rises when the borrower has information about himself which he does not share with the financial intermediary. However, these financial intermediaries are regulated by various regulatory agencies of the government. Though, it may not be of any direct profit motive for the government to regulate these financial intermediaries, but it may eventually reduce the problems arising out of asymmetric information and will lead to the economic growth of the country.