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22) Liquidity-provision and large-scale asset purchase programs led to an unprecedented quadrupling of the Feds balance shee

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Answer #1

Since M1 = Monetary base (MB) x Money multiplier (MM),

Increase in M1 = Increase in MB + Increase in MM

150% = 350% + Increase in MM

Increase in MM = - 200%

So, MM decreased by 200%, meaning MM fell to one-third of its initial value.

This is possible when banks keep a high proportion of deposits as excess reserves instead of lending them. The higher the ratio of excess reserves to deposit, the lower the value of money multiplier and the lower the growth in M1.

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