1. Add the $9 deposit insurance that was present in rounds 6 and 7 in class to the bank run game and find all of the equilibria in this new game by testing each of the eight strategy profiles for the existence of an incentive for one of the players to unilaterally change their strategy. Given the equilibria you found, what is the logic behind the deposit insurance? 2. In the 1980's when the Volcker-led Fed raised short term interest rates, there was approximately double the current rate of unionization in the US workforce, which could negotiate for cost of living increases into collective bargaining agreements locking in continual pay increases. Some people claim that this makes dubious the notion that inflation expectations are currently causing wages to increase, and that the current cause of inflation is more likely due to disruptions in supply chains. Assume that the supply chain argument is true and argue whether or not it changes the theoretical prediction of persistent inflation in the current environment. 3. Using the Bayes' rule example in class, assume that the patient gets retested and tests positive again. What is the updated probability of having COVID after a subsequent positive test? Repeat if the second test is negative. 4. Show that the strategies in the public goods game played in class can be interpreted as wear/do not wear a mask. Modify the payoffs to include a mask mandate from the government. Is it still a public goods game? Compare the logic of this government intervention with the intervention of deposit insurance in question 1. 1. Add the $9 deposit insurance that was present in rounds 6 and 7 in class to the bank run game and find all of the equilibria in this new game by testing each of the eight strategy profiles for the existence of an incentive for one of the players to unilaterally change their strategy. Given the equilibria you found, what is the logic behind the deposit insurance? 2. In the 1980's when the Volcker-led Fed raised short term interest rates, there was approximately double the current rate of unionization in the US workforce, which could negotiate for cost of living increases into collective bargaining agreements locking in continual pay increases. Some people claim that this makes dubious the notion that inflation expectations are currently causing wages to increase, and that the current cause of inflation is more likely due to disruptions in supply chains. Assume that the supply chain argument is true and argue whether or not it changes the theoretical prediction of persistent inflation in the current environment. 3. Using the Bayes' rule example in class, assume that the patient gets retested and tests positive again. What is the updated probability of having COVID after a subsequent positive test? Repeat if the second test is negative. 4. Show that the strategies in the public goods game played in class can be interpreted as wear/do not wear a mask. Modify the payoffs to include a mask mandate from the government. Is it still a public goods game? Compare the logic of this government intervention with the intervention of deposit insurance in question 1
