Open-market operations change the ; changes in reserve requirements change the ; and changes in the discount rate change the .
A)monetary base; monetary base; monetary base
B)money multiplier; money multiplier; money multiplier
D)C.monetary base; money multiplier; monetary base
D)money multiplier; monetary base; money multiplier

Question

Quizplus · Accepted Answer

Open-market operations involve the buying and selling of government securities, which affects the monetary base as it changes the level of reserves in the banking system. Reserve requirements determine the percentage of deposits that banks are required to hold, which affects the money multiplier. An increase in reserve requirements reduces the amount of money banks can lend out, decreasing the money multiplier. The discount rate is the interest rate at which banks can borrow from the Central Bank, and changes in this rate affect the cost of borrowing for banks, which impacts their willingness to borrow, affecting the monetary base. Therefore, changes in the discount rate change the monetary base.

Open-Market Operations Change the ; Changes in Reserve Requirements Change