In explaining why monetary policy did not pull Japan out of a recession in the early 2000s, an official at the Bank of Japan was quoted as saying that despite “major increases in the money supply,” the money “stay[ed] in banks.” Explain what the official meant by saying that the money stayed in banks. Why would that be a problem? Where does the money go if an expansionary monetary policy is successful?

Based on James Brooke, “Critics Say Koizumi’s Economic Medicine Is a Weak Tea,” New York Times, February 27, 2002.