In a Bank Run in the Diamond-Dybvig Model, It Is

question 3

Multiple Choice

In a bank run in the Diamond-Dybvig model, it is in any depositor's interest to request withdrawal of his or her deposit because

• A)government intervention assures that this is optimal behaviour.
• B)the bank suspends withdrawal.
• C)this avoids the possibility of consuming zero.
• D)this avoids the possibility of having one unit of consumption.
• E)there are plenty of liquid assets to go around.

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Definitions:

Selective Encoding

The process of focusing attention on relevant information while ignoring irrelevant information during problem solving and decision making.

Ambient Storage

A method of storage that does not require any artificial temperature control, relying instead on the ambient conditions of the surroundings.

Recursive Automatization

The process through which a task or skill becomes automatic through repetition, reducing the cognitive load required for its execution.

Computer Analogy

The computer analogy in psychology refers to comparing the human mind and its processing of information to the way a computer operates, including input, processing, and output functions.