As a Case Study in the chapter discusses, the money supply fell from 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 in Table 4-2 to answer the following hypothetical questions about this episode.
a. What would have happened to the money supply if the currency–deposit ratio had risen but the reserve–deposit ratio had remained the same?
b. What would have happened to the money supply if the reserve–deposit ratio had risen but the currency–deposit ratio had remained the same?
c. Which of the two changes was more responsible for the fall in the money supply?