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2) Consider two financial instruments: a one-year Treasury bill and a 15-year mortgage. Which is more liquid? Brienly deseribe why. 3) In the context of the model economy, there are large and small unexpected liquidity shocks. How would you explain the difference between a large and small liquidity shock?

only number 3 question, please.

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Answer #1

3. i)A liquidity shock is considered to be small, if it's size is smaller than the total excess liquidity present in the system.

Whereas, large liquidity shock is opposite of small shock. Here, size of large liquidity shock is larger than the total excess liquidity present in the system.

ii) when a small shock hits the system, the cycle graph becomes least resilient and least stable network, whereas the complete graph is most resilient and most stable. When the liquidity shock is larger, the complete and cycle graph is least resilient and least stable.

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