During the second half of 2008 the monetary base was growing far more rapidly than the money supply because
A) banks were using most of their excess reserves to extend loans and make investments.
B) the Fed quickly shifted from expansionary monetary policy to restrictive monetary policy.
C) banks were using their excess reserves to make foreign investments.
D) banks were maintaining huge excess reserves.

Question

Quizplus · Accepted Answer

Banks were maintaining huge excess reserves, meaning they were holding onto more money than necessary instead of using it to make loans or other investments. This resulted in the monetary base growing rapidly while the money supply did not.

During the Second Half of 2008 the Monetary Base Was