please solve attached question

Question 5 This 62.3791 Do not co circul has been comp Consider a two-period model with asymmetric information in the credit market. Asymmetric in- 2. Suppose that the total value of bank loans is equal to L This file formation is when banks cannot tell the good borrowers-those that repay their loans-from bad cops borrowers-those that default on their loans. Denote the fraction of good borrowers as a, and the must be equal to zero to show that r, = Its - 1 fraction of bad borrowers as 1 - o. In this economy, the bank serves as a financial intermediary that borrows from one set of individuals at rate r, and lends to another set of individuals at rate average borrower was more likely to default on a loan. illian with (a) [5 marks) Write down the bank's profit function. Then use the fact that equilibrium profits (b) [5 marks] Are there any credit market imperfections when o = 1? Explain. 6237 circulate Do not crisis and the impact this had on the macroeconomy. During the 2008 financial crisis there was an increase in credit market uncertainty because the This 6933 (9 5 marks Explain how the asymmetric information problem was worsened by the financial been coins culate lillian with W iled for student file has beer Do I I for student rulate