algebraic formula (1 Viewer)

[mouse]

help:

Mr. Midas has a wealth of $100,000 that he invests entirely in money ( a checking account) and government bonds. Mr. Midas intructs his broker to invest $ 50,000 in bonds, plus $5,000 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 Mr. Midas's demand for money as a fraction of bond and checking account interest rates.

b) Wite an algebraic formula hat 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 checking acounts. Checking accounts pay no interest. What is the interest rate on bonds in asset market equilibrium?

thanks!

 

[abdooooo!!!]

let b = interest of bond, c = interest of money

a) D(money) = 50000 - 5000(b - c)

b) D(bond) = 50000 + 5000(b - c)

SUM = 50000 - 5000(b - c) + 50000 + 5000(b - c)

= 100000

c) conditions sets interest of money, "c" to 0.

thus c = 0

also, D(money) = 20000, and D(bond) = 80000 at equilibrium position, since everyone has the same dominant strategy as Mr. Mito or whatever his name is.

to find "b", bond interest substitute c into either Demand for money or bond and solve a simple linear equation.

should obtain 6% as your final answer.

 

[mouse]

sweet, thanks!

 

[abdooooo!!!]

how do you get so many questions to ask... don't you have like the answers at the back of the books?

which econ book do you use?

 

[CrashOveride]

che

What topic is that under?

Is this for accounting or something ?


Oh i see, economics.
How come it's in the 4unit section ?