Explain clearly

Consider the following Diamond and Dybvig style model with 3 periods, t=0,1,2 where there are 100 agents who each have $1 endowment of a good at t=0 but care about consuming at t=1 or t=2. The endowment can be invested in two assets; a storage asset that allows the costless transfer of one unit from one time period to another and an illiquid asset that pays out 4 in period 2 but only 1 if it is liquidated early in period 1. At t=1 50 people learn, that they only care about consumption at t=1, while 50 learn that they only care about con- sumption at t=2, and so the ex ante utility of an agent in t=0 is }u(C1) + ju(C2) where the utility function u is u(C) = 1 - z. 5. What is the ratio of C2 to C1 in the optimal bank contract if it is known with certainty that there won't be a bank run? A. & = ; B. =2 C. =4 D. =16 E. None of A-D Page 2 of 6 NEXT PAGE 6. What is the optimal bank contract for this economy if it is known with certainty that there won't be a bank run? A. CI = , C2 = 68 B. C1 = 1, C2 =4 C. C = ], C2=$ D. CI = 2, C2 = 10 E. None of A-D 7. How much does the bank invest in the illiquid asset if it is known with certainty that there won't be a bank run? A. 162 B. 334 C. 663 D. 834 E. None of A-D 8. What is the expected utility of the optimal bank contract assuming that it is known with certainty that there will not be a bank run A. B. To C. H D. E. None of A-D 9. What is the expected utility of the optimal bank contract if there will be a bank run with probability * = 0.20 A. in B. 3 C. # D. E. None of A-D