The money multiplier declined significantly during the period 1930-1933 and also

Question

The money multiplier declined significantly during the period 1930-1933 and also during the recent financial crisis of 2008-2010. Yet the M1 money supply decreased by 25% in the Depression period but increased by more than 20% during the recent financial crisis What explains the difference in outcomes? ? A. There was a signdicant increase in the monetary base during the recent financial crisis ? B. The excess reserves ratio increased rapidly during the recent financial crisis O c. The overall level of deposit expansion decreased during the recent financial crisis O D. There was a minimal increase in the currency ratio during the recent financial crisis

Explanation / Answer

The answer is C. The overall level of deposit expansion decreased during the recent financial crisis.

Due to overall rapid fall in deposit expansion multiplier the scenario arises. In general bank gives lend most of its money above the reserve ratio but during these time of financial crisis banks try to hold money and did not give it as loan after the fall Lehman brothers. Banks prefer to hold more excess reserve.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.