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.
Answer to relevant QuestionsGive an example of a model that is used in some area other than economics, other than the roadmap example explained in this chapter. What is unrealistic about this model? How well does the model perform its intended function?In this chapter, we learned that the quantity of U.S. currency outstanding was $3,490 in March 2012. Suppose that we were to try to use this number to estimate the amount of output produced in the underground economy in the ...As an alternative to the economy depicted in Figure, suppose that there are three types of people, but now the person who consumes good 1 produces good 3, the person who consumes good 2 produces good 1, and the person who ...How would we modify the Friedman rule in the context of a New Keynesian sticky price model like the one in Chapter, assuming that monetary policy is the only policy that can be used to close output gaps? Explain.Suppose that the inflation rate is higher than i*, that the central bank announces it will reduce the inflation rate, and that it actually proceeds to do this. Answer the following:(a) Suppose that the private sector ...
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