{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

# hw5 - Homework 5 ECON 4721H Money and Banking Fall 2011 Due...

This preview shows pages 1–2. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Homework 5 ECON 4721H: Money and Banking, Fall 2011 Due Wednesday, November 23, at the beginning of class Problem 1: Bank Runs Consider an economy in which consumers live for three periods (called period 1 , 2 , and 3 ). Each consumer has an endowment of 20 goods when young, and nothing when middle-aged and when old. Assume that consumers eat the half of their endowment in the rst period, and save the other half. Utility from consumption depends on what "type" a consumer is, as follows: u ( c 1 ,c 2 ,c 3 ) = log [ c 2 ] for type 1 impatient log [ c 2 + c 3 ] for type 2 patient There are 200 consumers, and half will become each type. However, consumers only learn their type in period 2 . Assume no one else can observe the types (an agent knows her type only). There are two assets available in the economy, money and capital, o ering the following rates of return: One-Period Return Two-Periods Return Fiat Money 1 1 Capital . 9 1 . 5 1) Suppose a consumer, on her own, saves half her goods in each asset in period 1 . After nding out her type, she consumes all the savings in the appropriate period. Calculate the consumption the consumer would receive in either period. 2) Suppose a competitive bank o ers demand deposit contracts to all consumers, specifying interest rates r 1 and r 2 for deposits withdrawn in periods 2 and 3 , respectively. Which assets, and in what amounts, would the bank need to hold in order to o er...
View Full Document

{[ snackBarMessage ]}