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Evaluate the relaxation in credit standards that Futon is considering. (Use 0.04 percent per 365 days/year.)
Use the inventory model to determine the optimal transaction size for transfers from marketable securities to cash. What will be Walnut's average cash balance?
What is the maximum annual interest rate that Brown Company should pay on borrowed funds? Why?
Your grandmother likes old-fashioned yard sales and doesn't understand why everyone is so excited about eBay.
All else equal (including supply conditions), in which market do you expect deadweight loss to be greater? Explain.
If rent control creates deadweight loss for both consumers and suppliers of housing, why are consumers often in favor of this policy?
How would this policy have affected producer and consumer surplus? How would it have affected total surplus?
New York City has a long-standing policy of controlling rents in certain parts of the city-in essence. What does this imply for the size of total surplus?
You need to paint your fence but you really hate this task. What can you tell your friend to assure her that you did not cheat the kid next door?
A bad winter in mainland United States increases demand for tropical vacations, shifting the demand curve to right. Why does total surplus increase or decrease?
Consider a market in equilibrium. Suppose supply in this market increases. How will this affect consumer surplus? Explain.
Why is your consumer surplus now likely to be lower than it would have been if the seller hadn't overheard you?
The other seller says he is selling because the couch doesn't match his other furniture. Which seller do you expect to buy from? Why?
Who do you think would have a higher willingness to pay for a particular camera today? Why?
Which may be the aspects that explain these different perspectives of group lending benefits?
Assume for simplicity that y > 2R. Can potential borrowers obtain a loan in this case? Relate your answer to your interpretation of B.
Assuming that there is simultaneous monitoring and that borrowers are protected by limited liability, compute the interest rate that the bank will charge.
Compute the interest charged by the bank if group lending is implemented at date 0, and explain clearly whether all potential entrepreneurs will able to borrow.
If group lending can't be implemented in this economy, can all agents borrow? What interest rate would the bank charge if they can?
Compute the interest rate at which the bank will lend in this case. Briefly explain your answer, comparing it to your answer to part (a).
Consider a similar economy as the one described in the previous exercise. How relevant is this exercise to the case of solidarity groups in practice?
Now suppose that the bank is willing to lend to anyone on the condition. Explain how you expect potential borrowers to form groups of 2-borrower pairs.
Follow-up from your answer to the previous exercise: what is the upper bound of the discount rate? Briefly explain your answer.
What strategies will the borrower and the inside lender choose and why? Will these strategies change if inside lender increases the interest rate to R = 200%?
Explain why ROSCAs are so common in nearly all low-income economies these days. In what way have microfinance institutions resolved some of ROSCAs' limitations?