Chapter 4.3, Problem 37E

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7th Edition

Stefan Waner + 1 other

ISBN: 9781337274203

Textbook Problem

**Econometrics** (*from the GRE Economics Test*) This and the next exercise are based on the following simplified model of the determination of the money stock:

Money Stock

Currency in circulation

Bank Reserves

Deposits of the public

High-powered money

If the money stock were $120 billion, what would bank reserves have to be?

To determine

**To calculate:** The bank reserves if the money stock were

Where *M* is money stock, *C* is currency in regulation, *H* is high powered money.

Explanation

**Given Information:**

The money stock is

It is given that

Where *M* is money stock, *C* is currency in regulation, *H* is high powered money.

**Formula Used:**

Elementary row operations

Type 1: Replacing the row

Type 2: Replacing the row

Gauss Jordan reduction method:

Step 1: First clear the fractions or decimals if any, using operations of type 1.

Step 2: Select the first nonzero element of the first row as pivot.

Step 3: Use the pivot to clear its column using operations of type 2.

Step 4: Select the first nonzero element in the second row a pivot and clear its column.

Step 5: Turn all the selected pivot elements into a 1 using operations of type 1.

**Calculation:**

Consider the provided information,

The money stock is

So,

Consider the provided equations,

So,

Also,

Other equations are,

And

The augmented matrix for the given system of equations is set up with the unknowns in order: *C*, *R*, *D*, *H* is shown below:

Apply Gauss Jordan reduction method to get the solution of the given system of equation.

Begin with simplifying rows 2 and 3

Perform the operations

Pivot the first nonzero element of the first row and clear its column.

Perform the operations

In the next step,

Perform the operation

Next pivot the first nonzero element of the second row and clear its column

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Sect-4.1 P-11ESect-4.1 P-12ESect-4.1 P-13ESect-4.1 P-14ESect-4.1 P-15ESect-4.1 P-16ESect-4.1 P-17ESect-4.1 P-18ESect-4.1 P-19ESect-4.1 P-20ESect-4.1 P-21ESect-4.1 P-22ESect-4.1 P-23ESect-4.1 P-24ESect-4.1 P-25ESect-4.1 P-26ESect-4.1 P-27ESect-4.1 P-28ESect-4.1 P-29ESect-4.1 P-30ESect-4.1 P-31ESect-4.1 P-32ESect-4.1 P-33ESect-4.1 P-34ESect-4.1 P-35ESect-4.1 P-36ESect-4.1 P-37ESect-4.1 P-38ESect-4.1 P-39ESect-4.1 P-40ESect-4.1 P-41ESect-4.1 P-42ESect-4.1 P-43ESect-4.1 P-44ESect-4.1 P-45ESect-4.1 P-46ESect-4.1 P-47ESect-4.1 P-48ESect-4.1 P-49ESect-4.1 P-50ESect-4.1 P-51ESect-4.1 P-52ESect-4.1 P-53ESect-4.1 P-54ESect-4.1 P-55ESect-4.1 P-56ESect-4.1 P-57ESect-4.1 P-58ESect-4.1 P-59ESect-4.1 P-60ESect-4.1 P-61ESect-4.1 P-62ESect-4.1 P-63ESect-4.1 P-64ESect-4.1 P-65ESect-4.1 P-66ESect-4.1 P-67ESect-4.1 P-68ESect-4.1 P-69ESect-4.1 P-70ESect-4.1 P-71ESect-4.1 P-72ESect-4.1 P-73ESect-4.1 P-74ESect-4.1 P-75ESect-4.1 P-76ESect-4.1 P-77ESect-4.1 P-78ESect-4.1 P-79ESect-4.1 P-80ESect-4.1 P-81ESect-4.1 P-82ESect-4.2 P-1ESect-4.2 P-2ESect-4.2 P-3ESect-4.2 P-4ESect-4.2 P-5ESect-4.2 P-6ESect-4.2 P-7ESect-4.2 P-8ESect-4.2 P-9ESect-4.2 P-10ESect-4.2 P-11ESect-4.2 P-12ESect-4.2 P-13ESect-4.2 P-14ESect-4.2 P-15ESect-4.2 P-16ESect-4.2 P-17ESect-4.2 P-18ESect-4.2 P-19ESect-4.2 P-20ESect-4.2 P-21ESect-4.2 P-22ESect-4.2 P-23ESect-4.2 P-24ESect-4.2 P-25ESect-4.2 P-26ESect-4.2 P-27ESect-4.2 P-28ESect-4.2 P-29ESect-4.2 P-30ESect-4.2 P-31ESect-4.2 P-32ESect-4.2 P-33ESect-4.2 P-34ESect-4.2 P-35ESect-4.2 P-36ESect-4.2 P-37ESect-4.2 P-38ESect-4.2 P-39ESect-4.2 P-40ESect-4.2 P-41ESect-4.2 P-42ESect-4.2 P-43ESect-4.2 P-44ESect-4.2 P-45ESect-4.2 P-46ESect-4.2 P-47ESect-4.2 P-48ESect-4.2 P-49ESect-4.2 P-50ESect-4.2 P-51ESect-4.2 P-52ESect-4.2 P-53ESect-4.2 P-54ESect-4.2 P-55ESect-4.2 P-56ESect-4.2 P-57ESect-4.2 P-58ESect-4.2 P-59ESect-4.2 P-60ESect-4.2 P-61ESect-4.2 P-62ESect-4.2 P-63ESect-4.2 P-64ESect-4.2 P-65ESect-4.2 P-66ESect-4.2 P-67ESect-4.2 P-68ESect-4.3 P-1ESect-4.3 P-2ESect-4.3 P-3ESect-4.3 P-4ESect-4.3 P-5ESect-4.3 P-6ESect-4.3 P-7ESect-4.3 P-8ESect-4.3 P-9ESect-4.3 P-10ESect-4.3 P-11ESect-4.3 P-12ESect-4.3 P-13ESect-4.3 P-14ESect-4.3 P-15ESect-4.3 P-16ESect-4.3 P-17ESect-4.3 P-18ESect-4.3 P-19ESect-4.3 P-20ESect-4.3 P-21ESect-4.3 P-22ESect-4.3 P-23ESect-4.3 P-24ESect-4.3 P-25ESect-4.3 P-26ESect-4.3 P-27ESect-4.3 P-28ESect-4.3 P-29ESect-4.3 P-30ESect-4.3 P-31ESect-4.3 P-32ESect-4.3 P-33ESect-4.3 P-34ESect-4.3 P-35ESect-4.3 P-36ESect-4.3 P-37ESect-4.3 P-38ESect-4.3 P-39ESect-4.3 P-40ESect-4.3 P-41ESect-4.3 P-42ESect-4.3 P-43ESect-4.3 P-44ESect-4.3 P-45ESect-4.3 P-46ESect-4.3 P-47ESect-4.3 P-48ESect-4.3 P-49ESect-4.3 P-50ESect-4.3 P-51ESect-4.3 P-52ESect-4.3 P-53ESect-4.3 P-54ESect-4.3 P-55ESect-4.3 P-56ESect-4.3 P-57ESect-4.3 P-58ECh-4 P-1RECh-4 P-2RECh-4 P-3RECh-4 P-4RECh-4 P-5RECh-4 P-6RECh-4 P-7RECh-4 P-8RECh-4 P-9RECh-4 P-10RECh-4 P-11RECh-4 P-12RECh-4 P-13RECh-4 P-14RECh-4 P-15RECh-4 P-16RECh-4 P-17RECh-4 P-18RECh-4 P-19RECh-4 P-20RECh-4 P-21RECh-4 P-22RECh-4 P-23RECh-4 P-24RECh-4 P-25RECh-4 P-26RECh-4 P-27RECh-4 P-28RECh-4 P-29RECh-4 P-30RECh-4 P-31RECh-4 P-32RECh-4 P-33RECh-4 P-34RECh-4 P-35RECh-4 P-36RECh-4 P-37RECh-4 P-38RECh-4 P-39RECh-4 P-40RECh-4 P-41RECh-4 P-42RECh-4 P-43RECh-4 P-44RECh-4 P-45RECh-4 P-46RE

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