Which is a monetary policy that would be useful in stopping deflation?

History

1 answer:

Over [174]2 years ago

4 0

Lowering bank reserve limits

In a fractional reserve banking system, as in the U.S. and the rest of the developed world, banks use deposits to create new loans. By regulation, they are only allowed to do so to the extent of the reserve limit. That limit is currently 10% in the U.S., meaning that for every $100 deposited with a bank, it can loan out $90 and keep $10 as reserves. Of that new $90, $81 can be turned into new loans and $9 kept as reserves, and so on, until the original deposit creates $1000 worth of new credit money: $100 / 0.10 multiplier.

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