If the Fed purchases $10 billion of U.S. Treasury bills, the monetary base will increase by
A)$10 billion.
B)$10 billion times the money multiplier.
C)an amount that depends on the ratio of excess reserves to checkable deposits.
D)an amount that depends on the ratios of excess reserves to checkable deposits and currency to checkable deposits.

Question

Quizplus · Accepted Answer

When the Fed purchases U.S. Treasury bills, it pays for them by increasing the seller's reserve account at the Fed. This increases the monetary base by the exact amount of the purchase, which in this case is $10 billion. There is no dependence on the money multiplier or the ratios of excess reserves to checkable deposits or currency to checkable deposits.

If the Fed Purchases $10 Billion of U