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Unformatted text preview: derived in (b), i t hits the lower bound of zero. How does this a/ect your answer to part (c)? What are the dangers posed by the zero lower bound? 2. What is meant by adverse selection? 3. De&ne moral hazard. Given an example of how moral hazard can give rise to credit rationing. 4. How do banks create liquidity? Why does this make them at risk of a bank run? 5. Using data from FRED, plot the e/ective federal funds rate (FEDFUNDS), the 3-year constant maturity rate on government securities (GS3), and the rate on Baa corporate bonds (BAA). Use monthly data, from Jan. 1990 to the most recent observation. Has the relationship among these three interest rates changed since 2007? 1...
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This note was uploaded on 09/29/2010 for the course ECON 202 taught by Professor Ravenna,f during the Winter '08 term at University of California, Santa Cruz.
- Winter '08