the economics of money, banking, and financial markets

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36. 
    

    During the bank panics of the Great Depression the excess reserve ratio ____.
    A) increased sharply
    B) decreased sharply
    C) increased slightly
    D) decreased slightly
    Answer: A
    Diff: 2 Type: MC Page Ref: 396
    Skill: Recall
    Objective List: 16.4 Utilize a simple model of multiple deposit creation, showing how the
    central bank can control the level of deposits by setting the level of reserves

    
    


37. 
    

    During the banking panic that occurred in the United States between October 1930 and
    January 1931, ____.
    A) both c and {ER/D} rose
    B) {ER/D} more than doubled
    C) the money supply declined sharply
    D) All of the above.
    Answer: D
    Diff: 1 Type: MC Page Ref: 396
    Skill: Recall
    Objective List: 16.4 Utilize a simple model of multiple deposit creation, showing how the
    central bank can control the level of deposits by setting the level of reserves

    
    


38. 
    

    During the banking crisis in the United States that ended in March 1933,
    A) the money supply (M1) had declined by over 25 percent—by far the largest decline in
    American history
    B) the money supply declined despite a 20 percent rise in the monetary base
    C) both c and {ER/D} rose
    D) All of the above.
    Answer: D
    Diff: 1 Type: MC Page Ref: 396
    Skill: Recall
    Objective List: 16.4 Utilize a simple model of multiple deposit creation, showing how the
    central bank can control the level of deposits by setting the level of reserves

    
    


39. 
    

    The monetary base increased by 20 percent during the contraction of 1929-1933, but the
    money supply fell by 25 percent. Explain why this occurred. How can the money supply fall
    when the base increases?
    Answer: The banking crisis caused the public to fear for the safety of their deposits, increasing
    both the currency ratio and bank holdings of excess reserves in anticipation of deposit outflows.
    Both of these changes reduce the money multiplier and the money supply. In this case, the fall in
    the multiplier due to increases of currency and excess reserves more than offset the increase in
    the base, causing the money supply to fall.
    Diff: 3 Type: SA Page Ref: 396
    Skill: Applied
    Objective List: 16.4 Utilize a simple model of multiple deposit creation, showing how the
    central bank can control the level of deposits by setting the level of reserves