Banks in the Diamond-Dybvig Model Can Offer Depositors Increased Liquidity

question 57

Multiple Choice

Banks in the Diamond-Dybvig model can offer depositors increased liquidity because

• A) both individual depositors' liquidity needs and average depositor liquidity needs are predictable.
• B) while individual depositors' liquidity needs are unpredictable, average depositor liquidity needs are predictable.
• C) while individual depositors' liquidity needs are predictable, average depositor liquidity needs are unpredictable.
• D) neither individual depositors' liquidity needs nor average depositor liquidity needs are predictable.
• E) the bank only holds a small amount of illiquid assets.

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