Assume that the banking sector is described as follows: D=do-di (i-io) L= 10-11 (i-iL) Where L...

 

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Assume that the banking sector is described as follows: D=do-di (i-io) L= 10-11 (i-iL) Where L stands for bank loans, D stands for bank deposits, in the loan rate, ip deposit rate and is the market interest rate. Assume that banks do not have operating costs or are not required to hold reserves. (a) Calculate the competitive equilibrium in a diagram. How do your results change when the government sets deposit rates equal to ip=a with a Assume that the banking sector is described as follows: D=do-di (i-io) L= 10-11 (i-iL) Where L stands for bank loans, D stands for bank deposits, in the loan rate, ip deposit rate and is the market interest rate. Assume that banks do not have operating costs or are not required to hold reserves. (a) Calculate the competitive equilibrium in a diagram. How do your results change when the government sets deposit rates equal to ip=a with a