1. There are 100 perfectly competitive banks operating in a small regional market. The banks face utilize the same technologies and hence face incur identical resource costs associated with lending and issuing deposits. An individual bank is amount of loans (in millions of dollars) is denoted Li, and its amount of deposits (in millions of dollars) is denoted Di. Equations for these amounts are the following:

1. Loans: Li = 7 + (100)rL
2. Deposits: Di = 12 - (100)rD

a. (9 points) Suppose that the total amount of loans summed across all banks in this market is denoted L and that the total amount of deposits is denoted D. Recall how market supply and demand curves are the summations of all individual banks supply and demand curves, and determine equations for the market supply of loans and the market demand for deposits. Show your work, and explain briefly. Write words and sentences.

b. (9 points) Suppose that the equation for the publics demand for loans in this regional market is L = 1,500 (10,000)rL. In addition, the equation for the market supply of deposits by the public is D = 1,000 + (10,000)rD. Use this information together with your answers to part a to calculate the market clearing loan rate and the market clearing deposit rate. Show your work, and explain briefly. Write words and sentences.

c. (9 points) What are the equilibrium amounts of loans and deposits for the market as a whole? What are the amounts of loans and deposits at each bank? Show your work, and explain briefly. Write words and sentences.

d. (7 points) If the loan and deposit markets are both in equilibrium, and if economists were to estimate that in this situation the implicit marginal resource cost of lending is MCL = 0.01, what is the value of the current marginal resource cost of deposits? Show your work, and explain briefly. Write words and sentences.