Between August 1929 and March 1933, the money supply fell 28 percent. At that time the monetary base ______ and the currency-deposit and reserve-deposit ratios both ______.

Question

Quizplus · Accepted Answer

During this period, the monetary base actually increased because the Federal Reserve increased bank reserves, but the currency-deposit and reserve-deposit ratios both rose as well. People withdrew their money from banks and held onto it due to fear of bank failures, which increased the currency-deposit ratio. Banks, fearing further withdrawals and being cautious about lending, held onto reserves rather than lending them out, which increased the reserve-deposit ratio.

Between August 1929 and March 1933, the Money Supply Fell