Members of the Central Bank and Canadabank are both vying for promotions.Central Bank members receive promotions if they keep interest rates and unemployment low.Canadabank officers receive promotions if they make loans with few defaults.In case A,the Bank keeps money growth low,minimizing inflation,but hurting growth;and in Case B,they allow money growth,which reduces interest rates,but increases inflation in the long run.In case C,Canadabank officers make few loans,minimizing the variability of profits;and in case D,they make many loans,increasing the variability of profits.The possible outcomes and promotions are listed below:
$$\begin{array} { c c c }
\text { Outcome } & \text { Bank } & \text { Canadabank } \
\hline ( \mathrm { A } , \mathrm { C } ) & 10 & 10 \
( \mathrm {~A} , \mathrm { D } ) & 20 & 5 \
( \mathrm {~B} , \mathrm { C } ) & 5 & 20 \
( \mathrm {~B} , \mathrm { D } ) & 15 & 15 \
\hline
\end{array}$$
Assume members of the Bank and Canadabank don't care whether other people receive promotions.If the Bank makes their policy move first,what action will each bank take?

Question

Members of the Central Bank and Canadabank are both vying for promotions.Central Bank members receive promotions if they keep interest rates and unemployment low.Canadabank officers receive promotions if they make loans with few defaults.In case A,the Bank keeps money growth low,minimizing inflation,but hurting growth;and in Case B,they allow money growth,which reduces interest rates,but increases inflation in the long run.In case C,Canadabank officers make few loans,minimizing the variability of profits;and in case D,they make many loans,increasing the variability of profits.The possible outcomes and promotions are listed below:
$$\begin{array} { c c c } 
\text { Outcome } & \text { Bank } & \text { Canadabank } \
\hline ( \mathrm { A } , \mathrm { C } ) & 10 & 10 \
( \mathrm {~A} , \mathrm { D } ) & 20 & 5 \
( \mathrm {~B} , \mathrm { C } ) & 5 & 20 \
( \mathrm {~B} , \mathrm { D } ) & 15 & 15 \
\hline
\end{array}$$
Assume members of the Bank and Canadabank don't care whether other people receive promotions.If the Bank makes their policy move first,what action will each bank take?

Quizplus · Accepted Answer

The Bank will choose A to keep interest rates and unemployment low, which will give them a promotion. Canadabank will then choose C to minimize the variability of profits, which will also give them a promotion.

Members of the Central Bank and Canadabank Are Both Vying