If the Fed purchases a new computer system for $50 million, the monetary base will
A)rise by $50 million.
B)fall by $50 million.
C)be unchanged.
D)either rise or fall depending upon whether the Fed purchases the computer system by writing a check or by paying cash.

Question

Quizplus · Accepted Answer

When the Fed purchases a new computer system for $50 million, they will pay for it by increasing their own bank account with the seller's bank by $50 million. This increases the reserves in the banking system by $50 million, which in turn increases the monetary base by $50 million.

If the Fed Purchases a New Computer System for $50