Raymond B. answered • 12/09/20
Math, microeconomics or criminal justice
If the reserve requirement were 100%, then banks could only lend as much as they have in deposits. Lower the rate, and they can lend more. Drop the rate to zero, and they can lend an infinite amount, which puts more endless money into the economy.
One theory, called monetarist, is that when FDR tightened reserve requirements during the Great Depression, it caused a deeper Depression, due to its contractionary results.
Obama did the same during the "Great Recession" of 2008, tightening regulations on banks, and almost giving us a Double Dip, similar to FDR's. Ben Bernanke seemingly caused it more than even Obama's Secretary of the Treasury.
MV = PQ is a tautology. M = money supply. V = velocity of money P = Price level, Q = total output
increase M and several things could happen, but P usually goes up, but usually both P and Q go up. IF M goes up to much P goes up as well as V, putting Q down. Hyperinflations tend to dampen out put although in the short run its a boost to the economy. Pre-Hitler Germany experienced that situation.
