If the Fed decides to use an open market operation to reduce the money supply by $1 million, and if the money multiplier is 10, then what total amount of Treasury securities must the Fed initially sell?
A) $10,000,000.
B) $1,000,000.
C) $100,000.
D) $10,000.

Question

Quizplus · Accepted Answer

The Fed must sell $100,000 in Treasury securities. With a money multiplier of 10, this initial sale will reduce the money supply by 10 times the amount sold, achieving the desired $1 million reduction in the money supply.

If the Fed Decides to Use an Open Market Operation