Question 2 (2.5 points): Central Banks around the world responded to the Global Financial Crisis and the Great Recession that followed it by dramatically cutting interest rates and ooding the nancial system with cheap money. They doubled-down on the same policies during the Covid19 pandemic. All of this was in hope that the banks will lend cheap funds out to the companies and households for investment and consumption, supporting economic growth, employment and incomes. Yet, total reserves held by the banks soared during both crises (see data for the U.S.: https:f/fredstlouisfedorgfserieszOTRESNS). This led, in part, to a massive increase in the monetary base (https:fred.stlouisfedorgfserieszOGMBASE), even though currency in circulation in the economy rose by a action of the reserves increase (https:l/www.federalreserve.govfreleases/hfcurrent/defaulthtm). (a) In your opinion, why did reserves rise so much faster than the money in circulation? (b) Could the Central Bank deploy negative rates to increase money ows in the economy in this environment? How