The Monetary Base Increased by 20% During the Contraction of 1929-1933,but

question 170

Essay

The monetary base increased by 20% during the contraction of 1929-1933,but the money supply fell by 25%. Explain why this occurred. How can the money supply fall when the base increases?

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Definitions:

Cash Outflow

Pertains to the movement of money out of a business, primarily through expenses, payments to creditors, or investments, leading to a decrease in cash balance.

Financing Activity

Involves transactions related to a business's funding, including obtaining or repaying capital, issuing shares, and paying dividends.

Investing Activities

Financial transactions related to the purchase and selling of long-term assets and other investments not considered as cash equivalents.

Long-term Assets

Assets that are expected to provide economic benefits over periods longer than one year, such as buildings, machinery, and land.