3. Jason has wealth of $100,000 that he invests entirely in money (a checking account) and government bonds.

Jason 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 checking account.

a. Write an algebraic formula that gives Jason’s demand for money as a function of bond and checking account interest rates.

b. Write an algebraic formula that gives Jason’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 Jason. Fixed asset supplies per person are

$80,000 of bonds and $20,000 of checking accounts.

Checking accounts pay no interest. What is the inter est rate on bonds in asset market equilibrium?