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Unformatted text preview: Homework 1 ECON 4721H: Money and Banking, Fall 2011 Due Monday, September 19, at the beginning of class Problem 1. Mortgage Crisis (40pts) This problem asks you to write a short report (1 page) summarizing the recent nancial crisis and the recession. In your report, you have to answer clearly to the following questions; 1. Why did this current crisis happen? 2. How did the mortgage crisis turn into a nancial crisis? In addtion to my lecture notes, you should read the article, Deciphering the Liquidity and Credit Crunch 2007-08, by Markus K. Brunnermeier in NBER working paper series on my website before you start writing. Problem 2. Consumption-Based Asset Pricing Model (35pts) As in the class, assume the economy has two period, today and tomorrow. Tomorrow has two states, sunny ( S ) and rainy ( R ) , with probabilities, S + R = 1 . There are only an ice cream company and a rain boots company in the economy. And, their stocks have the following payo s; x 1 = ( x 1 ( S ) = 1 x 1 ( R ) = 0 x 2 = ( x 2 ( S ) = 0 x 2 ( R ) = 1 Consider a consumer in the economy (though there are many consumers in the economy). He isConsider a consumer in the economy (though there are many consumers in the economy)....
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This note was uploaded on 02/07/2012 for the course ECON 4721H taught by Professor Tanaka during the Fall '11 term at Minnesota.
- Fall '11