Suppose that the money multiplier is 3. If the monetary base increases by $1 million, the quantity of money will
A) increase by $300,000.
B) decrease by $300,000.
C) decrease by $3 million.
D) increase by $3 million.

Question

Quizplus · Accepted Answer

The quantity of money is equal to the monetary base multiplied by the money multiplier. Therefore, if the monetary base increases by $1 million and the money multiplier is 3, the quantity of money will increase by $3 million.

Suppose That the Money Multiplier Is 3