Discuss what experience concerning required reserves occurred during the Great Depression that contributes to the decision today not to use required reserves as an active tool of monetary policy.
What will be an ideal response?
Following the banking crisis of the early years of the depression many banks began accumulating excess reserves, likely to have insurance in the event of a run on their bank. The Federal Reserve Board viewed the high level of excess reserves as potential fuel for a rapid expansion of deposits and loans, which could become potentially inflationary. In mid to late August of 1936 the Fed used their powers to effectively double the reserve requirement. Bank executives used the following year to rebuild their reserve balances back to where they were. Even though the monetary base was quite stable this action forced the amounts in M1 and M2 lower, which meant the money multiplier was lower, and economic activity followed the path of M1 and M2 as GDP fell more than 10 percent in 1937.
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Points outside the production possibilities curve represent combinations of products that are
A) unattainable. B) attainable only if the economy's resources are not fully employed. C) attainable if the economy's resources are either fully employed or not fully employed. D) attainable only if the economy's resources are fully employed.
Since 1960
A) in every decade, Japan has experienced faster growth than the United States. B) growth rates in South American countries have exceeded those in North America. C) real GDP per person in Hong Kong and Singapore have grown and are approaching or surpassing that in the United States. D) due to rapid growth, real GDP per person in China is now about 50 percent of that in the United States.