When the monetary base increases by $4 billion, the quantity of money increases by $10 billion. Thus, the money multiplier equals
A) 2.5
B) 0.4
C) 40.0
D) none of the above

Question

Quizplus · Accepted Answer

The money multiplier is equal to the increase in the money supply divided by the increase in the monetary base. In this case, the money multiplier is 10/4 = 2.5, therefore the correct answer is A.

When the Monetary Base Increases by $4 Billion, the Quantity