Question 4- Consider the model of demand deposits. Suppose N = 100, y=250, vk-q = 0.75,

and X=1.2 . Let each person have a two-fifths chance of being an Early type and three-fifths

chance of being a Late type.

a. (3 point) What bank portfolio can guarantee the rate of return 1 to Early-type people and

the rate of return 1.2 to all Late-type people?

b. (3 point) How many goods are placed in storage? In capital?

c. (3 point) Now suppose the Late-type people pretend to be Early-type and withdraw

early. How many people can be paid before the bank runs out of assets.