Mr Midas has wealth of $100 000 that he invests entirely in money (a chequing account) and government bonds Mr Midas instructs his broker to invest $50 000 in bonds, plus $5000 more in bonds for every percentage point that the interest rate on bonds exceeds the interest rate on his chequing account...

a M d 100 000 50 000 5000 x i im x 100 Multiplying by 100 ...

Mr. Midas has wealth of $100 000 that he invests entirely in money (a chequing account) and

Question:

Mr. Midas has wealth of $100 000 that he invests entirely in money (a chequing account) and government bonds. Mr. Midas instructs his to invest $50 000 in bonds, plus $5000 more in bonds for every percentage point that the interest rate on bonds exceeds the interest rate on his chequing account.
a. Write an algebraic formula that gives Mr. Midas's demand for money as a function of bond and chequing account interest rates.
b. Write an algebraic formula that gives Mr. Midas's demand for bonds. What is the sum of his demand for money and his demand for bonds?
c. Suppose that all holders of wealth in the economy are identical to Mr. Midas. Fixed asset supplies per person are $80 000 of bonds and $20 000 of chequing accounts. Chequing accounts pay no interest. What is the interest rate on bonds in asset market equilibrium?
Broker
A broker is someone or something that acts as an intermediary third party, managing transactions between two other entities. A broker is a person or company authorized to buy and sell stocks or other investments. They are the ones responsible for...