During the Great Depression, the excess reserve to deposit ratio rose for a variety of reasons. The impact on the money multiplier was negative. That is, all else constant, a higher excess reserve to deposit ratio lowers the money multiplier. True/False

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2 October, 19:12

During the Great Depression, the excess reserve to deposit ratio rose for a variety of reasons. The impact on the money multiplier was negative. That is, all else constant, a higher excess reserve to deposit ratio lowers the money multiplier. True/False

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Maeve · Answer 1

The correct answer is True.

Explanation:

When banks hold a maximum percentage of bank deposits as treasure, the twine maker's audacity decreases. To see why this is so, let's first look at the recipe for the pasta divider.

The recipe for the money maker is:

Multiplier = 1 / list of required circumspection.

However, we should be aware that this assumes that banks will lend all deposits that they are not required to support as required treasury. In essence, the executor in this formula is really the percentage of deposits that is kept in the belt in opportunity to be borrowed. When the delicacy of riches increases, the factor in this recipe still increases. When this happens, the negotiator falls.

We can also see why the value of the creator of parné falls in a non-mathematical way. The number exists because banks lend string. If I deposit $ 1000, the jail could feed $ 100 as required treasure and lend the other $ 900 to someone else. When they grant this loan, the money offer has increased by $ 900 because my $ 1000 has become $ 1900. Now imagine that the belt has a treasury treat. Now I deposit $ 1000 but the side maintains $ 500. In this case, my $ 1000 romanza becomes $ 1500. Therefore, when the banks keep more money in the treasury, the decision of the twine executor decreases.