Suppose that the money multiplier is 3. If the monetary base decreases by $2 million, the quantity of money will
A) decrease by $6 million.
B) decrease by $666,667.
C) increase by $666,667.
D) increase by $6 million.

Question

Quizplus · Accepted Answer

The money multiplier indicates how much the money supply will change in response to a change in the monetary base. If the monetary base decreases by $2 million and the money multiplier is 3, the quantity of money will decrease by 3 times $2 million, which is $6 million.

Suppose That the Money Multiplier Is 3