Question
Two questions about Macroeconomics Intertemporal model and Diamond-Dybvig banking model Question 1 In the monetary intertemporal model, suppose that the government can pay interest on
Two questions about Macroeconomics Intertemporal model and Diamond-Dybvig banking model
Question 1
In the monetary intertemporal model, suppose that the government can pay interest on money, financing this interest with lump-sum taxes on consumers. If the nominal interest rate on money is the same as the nominal interest rate on bonds, determine the effects in the model, illustrating this in a diagram. Explain your results.
Question 2
In the Diamond-Dybvig banking model, suppose that the banking contract includes a suspension of convertibility provision according to which the bank allows only the first tN depositors in line in period 1 to withdraw their deposits.
Will there still be a bank-run equilibrium?Carefully explain why or why not.
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