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Consider the Diamond-Dybvig banking model from class. Suppose that N = 200 (there are 200 consumers), each with $1. Further suppose that r = 0.1
Consider the Diamond-Dybvig banking model from class. Suppose that N = 200 (there are 200 consumers), each with $1. Further suppose that r = 0.1 and t = 0.25. Answer the following questions about this. (a) If the bank offers to pay each "early consumer ci = $1.05, how much should they keep in Reserves? Therefore, how much do they pay each late consumer? (b) If you know that the MUC = 0.5, what must MUC be in order for this contract to be optimal? (c) Suppose now that the interest rate is r = 0.05. If the bank offers to pay each late" consumer C2 = $1.04, What does the bank then pay each "early" consumer, c? Therefore, how much should the bank keep in Reserves? Consider the Diamond-Dybvig banking model from class. Suppose that N = 200 (there are 200 consumers), each with $1. Further suppose that r = 0.1 and t = 0.25. Answer the following questions about this. (a) If the bank offers to pay each "early consumer ci = $1.05, how much should they keep in Reserves? Therefore, how much do they pay each late consumer? (b) If you know that the MUC = 0.5, what must MUC be in order for this contract to be optimal? (c) Suppose now that the interest rate is r = 0.05. If the bank offers to pay each late" consumer C2 = $1.04, What does the bank then pay each "early" consumer, c? Therefore, how much should the bank keep in Reserves
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