Q6 [10 marks]. Bank A has the following balance sheet: Assets Liabilities and Equity Liquid Assets 10,000 Deposits 80,000 Illiquid Loans 90,000 Equity 20,000 a) If depositors trust Bank A, only 8,000 would be withdrawn by depositors who bl C) unexpectedly need to use cash. How does Bank A's balance sheet change after the withdrawal? [2 marks] Let's start with the original bank balance sheet. If depositors lose trust in Bank A, all depositors will want to withdraw their deposits as soon as possible. Suppose other banks refuse to lend money to Bank A. Bank A, therefore, has to liquidate its illiquid loans. The 90,000 loans can only be converted to 40,000 cash if liquidated prematurely. How much money would the depositors lose? How much money would the owners of Bank A lose? Explain intuitively how a mere suspicion can trigger a bank run. (Hint: you can draw on the concept of limited liability to answer this question). [5 marks] Explain how deposit insurance can prevent bank runs. [3 marks]