If Federal Reserve float increases by $2 billion, the monetary base will increase by
A)$2 billion.
B)$2 billion times the money multiplier.
C)from zero to $2 billion, depending on the fraction of the increase in float that banks hold as excess reserves.
D)zero; fluctuations in float have no effect on the base.

Question

Quizplus · Accepted Answer

An increase in the Federal Reserve float directly increases the monetary base by the same amount, in this case, $2 billion. The monetary base consists of currency in circulation plus reserves held by banks at the Fed, and an increase in float effectively increases the reserves available to banks, thus directly increasing the monetary base.

If Federal Reserve Float Increases by $2 Billion, the Monetary