Unformatted text preview: θ and C ν H θ H + 1 θ H for the assumed values. Most of the answers are fractions – simplify the results as much as possible but leave them as fractions. 3. In the screening model, obtain expressions for the expected net output per unit of investment in the following possible equilibria: (i) bondsonly; (ii) banksonly; (iii) interior (bondsandbanks). Interpret this results. [‘Expected net output’ = expected output from an investment of X minus the investment, X .] 4. In the screening model, if an interior equilibrium exists, then so also does a banksonly equilibrium: there is no prediction about which of the two will be observed. How could this weakness of the model be overcome? That is, what assumptions of the model should be replaced to obtain more plausible results? [NOTE: a detailed analysis of revised models is not required.] *****...
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 Spring '12
 R.E.Bailey
 Finance, Economics, Logic, Bond and Derivatives Markets, E CONOMICS

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