These were taken from Money and Banking problem set 1(Columbia University, Professor Tri V Dang), if that information helps.

Please help with these two questions! These were taken from Money and Banking problem set 1(Columbia University, Professor Tri V Dang), if that information helps. Explanation/Answers/answers to similar questions will all be greatly appreciated. Thank you!

1. Consider an economy with three dates (T=0,1,2) and the following investment opportunity. If an agent invests $1 in a project at T=0, the project yields $4 at T=2. The project can be liquidated at T=1 but early liquidation yields at $1 at T=1. 

An agent has $1 and is risk avers and can be of two types. With probability 0.4 an agent is a type-1 consumer and with probability 0.6 an agent is a type-2 consumer. 

If an agent is a type1-consumer, he only values consumption at T=1 and his utility function is 

u1= 2- (1/c1)

where c is the amount consumed at T=1. If an agent is a type-2 consumer, he values consumption at both T=1 and T=2 according to the utility function


where c1 and c2 are the amounts consumed at T=1 and T=2, respectively. 

a) what is the expected utility of the agent?

Now consider a bank that invests in these projects. There are N=1000 agents. All agents are identical ex ante in the above sense. Suppose they all deposit $1 each with the bank. The bank offers the following demand deposit contract (d1,d2) where d1 is the amount an agent can withdraw at T=1 and d2 is the amount he can withdraw at T=2. 

b) suppose d=1.2 What is the amount d2 that the bank can offer an agent who withdraws at T=2? What is the expected utility of an agent?

c) Suppose d2=3.4 What is the amount d1 that the bank can offer an agent who withdraws at T=1? What is the expected utility of an agent? 

Suppose the bank offers (d1,d2) = (1.4 , 2.93). An agent expects that M=640 other agents will withdraw at T=1. 

d) What is the best response of the type-2 consumer, i.e. does he have an incentive to run to the bank and withdraw at T=1?

e) What is the maximum number of withdrawals at T=1 such that a type-2 consumer has no incentive to withdraw at T=2?

2. Now consider policy responses in the above economy where a bank offers a demand deposit of (d1,d2) = (1.225, 3.4)

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 (i.e. how many agents are allowed to withdraw at T=1) in order to avoid that a type-2 consumer withdraws at T=1? Is this number unique?

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 =3.4. Please explain if this is correct.

c) suppose I=1.225. How many type-2 consumers will withdraw at T=2?

Calculate Your Essay Price
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
The price is based on these factors:
Academic level
Number of pages
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Order your essay today and save 10% with the coupon code: best10