In the Diamond-Dybvig Model

question 25

Multiple Choice

In the Diamond-Dybvig model

• A)consumers are not risk averse.
• B)the production technology yields more consumption goods in period 1 if interrupted, than if it is not interrupted an pays off in period 2.
• C)a bank insures the consumer against the need for liquidity in period 1.
• D)the production technology can be interrupted so as to give a return in period 0.
• E)consumers can do as well on their own as they do with banks.

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Definitions:

Money Managers

Professionals who make investment decisions and manage the portfolio of securities for their clients.

Alpha

A measure of the active return on an investment, indicating how much a portfolio has outperformed or underperformed its benchmark index.

CAPM

The Capital Asset Pricing Model, a theory that describes the relationship between the risk of a security and its expected return.

Expected Return

The anticipated value or profit that an investment is predicted to generate.