If the M1 multiplier is 3 and the Fed engages in open-market sales in the amount of $3 billion, then M1 will
A)increase by $1 billion.
B)decline by $1 billion.
C)decline by $9 billion.
D)increase by $9 billion.

Question

Quizplus · Accepted Answer

When the Fed engages in open-market sales, it sells securities, which decreases bank reserves and thus the money supply. With a multiplier of 3, a $3 billion sale results in a $9 billion decrease in M1.

If the M1 Multiplier Is 3 and the Fed Engages