Question: Question 2 [10 points] Now consider policy responses in the above economy where a bank offers a demand deposit of (d1,d2) = (1.3, 3.7). a)

Question 2 [10 points] Now consider policy
Question 2 [10 points] Now consider policy responses in the above economy where a bank offers a demand deposit of (d1,d2) = (1.3, 3.7). a) Suppose the government wants to suspend convertibility of demand deposit into cash if too many agents are withdrawing. When should a suspension kick in (Le. how many agents are allowed to withdraw at T=l) in order to avoid that a type-2 consumer withdraws at T=1? Is this number unique? [4 Points] Suppose the government designs a deposit insurance fund and insures an amount of I. b) In order to avoid a bank run of type-2 consumers, the minimum insurance is I=3.7. Please explain if this is correct. [3 Points] c) Suppose I=l.3. How many type-2 consumers will withdraw at T=2? [3 Points]

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!