Unformatted text preview: ECON 101B: Section 27 Handout Date: 04/27/2011 Question 1 The money supply fell during the years 1929 to 1933 because both the currency-deposit ratio and the reserve-deposit ratio increased. Use the model of the money supply and the data provided below to answer the following hypothetical questions about this episode. August 1929 March 1933 Money supply 26.5 19.0 Monetary base 7.1 8.4 Money multiplier 3.7 2.3 Reserve-deposit ratio 0.14 0.21 Currency-deposit ratio 0.17 0.41 1. What would have happened to the money supply if the currency-deposit ratio had risen but the reserve- deposit ratio had remained the same? 2. What would have happened to the money supply if the reserve-deposit ratio had risen but the currency- deposit ratio had remained the same? 3. Which of the two changes was more responsible for the fall in the money supply? Question 2 Suppose that an epidemic of street crime sweeps the country, making it more likely that your wallet will be stolen. Using the Baumol-Tobin model, explain (in words, not equations) how this crime wave will a/ectstolen....
View Full Document
- Spring '08