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,

  $M=m\times MB$

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.