Economics 2121
Pamela Labadie
George Washington University
Fall 2022
Homework 8
Due midnight (East Coast time) November 13
This assignment is based on chapters 16-17and the lecture notes on the money supply process.
1. In 2008, interest rates on lending il fell while the Federal Reserve began paying interest rate on excess
reserves ier . Describe the impact on the money multiplier. Examine the multiplier in the data for this
time period. Is your prediction for the impact on the multiplier consistent with the data?
2. The use of cash for carrying out transactions has been declining, which we can interpret as the currency/deposit ratio c tending towards 0. Describe the impact on the multiplier.
3. During the early part of the 1930s after the stock market crash of 1929, the money supply contracted
about 25% by March 1933 and about one third of all banks had failed. This was before the enactment
of Glass-Stegal. Assume that the monetary base was constant (it fell slightly in actuality) and describe
the behavior of the money multiplier.
4. Depression in the 1930s, the Federal Reserve increased the required reserve ratio three times – in August
1936, January 1937 and May 1937. The objective was to increase confidence in the banking system
so as to prevent bank runs (deposit insurance was new and not well understood by the public). Use
the money multiplier to explain why the money supply continue to contract. By the end of 1937, the
money supply contracted by about 33%.
5. During the pandemic, there was a great deal of uncertainty about the impact on the economy. Derive
the implications of an increase on the multiplier of an increase in uncertainty.
1

Purchase answer to see full
attachment