Author Question: In a two-period model with production, an anticipated future increase in domestic total factor ... (Read 110 times)

tatyanajohnson · **on:** Jun 30, 2018

In a two-period model with production, an anticipated future increase in domestic total factor productivity

A) increases domestic output and increases the current account surplus.
B) increases domestic output and decreases the current account surplus.
C) has no effect on domestic output and increases the current account surplus.
D) has no effect on domestic output and decreases the current account surplus.

Question 2

How might asymmetric information cause a well-managed bank to be abandoned by its depositors?

What will be an ideal response?

mtmmmmmk · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

D

Answer to Question 2

Bank depositors know little about their bank's lending practices, except when a particular bank fails. Depositor's at other banks have to wonder whether their bank is safe, which comes down to whether other depositors believe the bank to be safe. In the absence of credible deposit insurance, any depositor who is unsure that other depositors will keep their funds in the bank must, rationally, withdraw her funds. If enough depositors do so, the bank has failed.