This exercise is based on the following simplified model of the determination of the money stock.
$$\begin{array} { l }
M = C + D \
C = 0.2 D \
R = 0.1 D \
H = R + C
\end{array}$$ , Where M - money stock
C - currency in circulation
R - bank reserves
D - deposits of the public
H - high-powered money

If the money stock were $192 billion, what would bank reserves have to be

A)$11 billion
B) $18 billion
C) $17 billion
D) $12 billion
E) $16 billion

Question

This exercise is based on the following simplified model of the determination of the money stock.  
 $$\begin{array} { l } 
M = C + D \
C = 0.2 D \
R = 0.1 D \
H = R + C
\end{array}$$ , Where M - money stock
C - currency in circulation
R - bank reserves
D - deposits of the public
H - high-powered money
 
If the money stock were $192 billion, what would bank reserves have to be 
 
A)$11 billion
B) $18 billion
C) $17 billion
D) $12 billion
E) $16 billion

Quizplus · Accepted Answer

Given the equations, substitute C = 0.2D and R = 0.1D into M = C + D to find D. Then calculate R = 0.1D.

This Exercise Is Based on the Following Simplified Model of the Determination