Pearson eText Economics of Money, Banking and Financial Markets, The, Business School Edition -- Instant Access (Pearson+)
Question
Book Icon
Chapter 17, Problem 13Q
To determine

The effect of excess reserve ratio e and currency ratio c on money multiplier during the great depression year from 1930 to 1933.

  1. Depression years and Currency ratio
  2. The changes in the currency ratio can be in the determination of money supply.
  3. Money supply decrease due to rise in the currency ratio.

Concept introduction:

The fixed portion of deposits, the rate which is decided by the central bank, which the banks have to maintain with the Central Bank, is called the reserve ratio .

Bank crises and currency ratio: The currency ratio c rises with the onset of bank crises.

Currency ratio and money supply: Continuous bank crises and changes in money stock can be in the determinationof money supply.

Money supply decrease due to rise in the currency ratio: The relation between money supply (M the multiplier and monetary base (MB) is,

  M=m×MB

Money multiplier is the deposits to the required reserves ratio. The number of times, aggregate money supply augments from deposit increase in the commercial banks is given by money multiplier.

Blurred answer
Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education