Introduction / Context:
Interest-rate structure on deposits typically varies with term because banks manage asset–liability maturity. This question evaluates whether a single rate for all terms is desirable and whether the offered arguments are strong in reasoning and evidential plausibility.
Given Data / Assumptions:
- I predicts depositors will avoid longer terms if rates are uniform, but it does not explain why they would not still choose terms for safety or convenience.
- II claims simplicity will encourage more deposits, but offers no linkage to behavior beyond conjecture and ignores risk–return trade-offs.
- No empirical evidence is offered; we judge logic quality.
Concept / Approach:
- Strong arguments need a clear causal path and must address how pricing aligns with maturity risk and banking stability.
- Merely stating consequences without mechanism or acknowledging standard practice is weak.
Step-by-Step Solution:
Assess I: It assumes uniform rate leads to shunning long terms. Some depositors still prefer long terms for planning, but the argument does not convincingly prove systemic reduction in stability; it is speculative—weak.Assess II: “Simplicity” alone does not imply people will deposit more. Depositors respond to returns, safety, and liquidity. Lacking substantive reasoning, II is also weak.
Verification / Alternative check:
In practice, term premiums compensate for locking funds. Removing them can misprice maturities; yet neither argument adequately articulates this technical rationale.
Why Other Options Are Wrong:
Only I / Only II / Both / Either: These overcredit arguments that are speculative and under-explained.
Common Pitfalls:
Confusing “sounds plausible” with “logically sufficient.” Strong policy arguments require more than assertion.
Final Answer:
Neither I nor II is strong
Discussion & Comments