If the money multiplier is 3 and the Fed buys $50,000 worth of bonds,what happens to the money supply?
A)it increases by $100,000
B)it increases by $150,000
C)it decreases by $100,000
D)it decreases by $200,000

Question

Quizplus · Accepted Answer

The money multiplier is the factor by which deposits in the banking system can increase the money supply. If the money multiplier is 3, then a $50,000 bond purchase by the Fed would increase the money supply by 3 times that amount, or $150,000. Therefore, the correct answer is B.

If the Money Multiplier Is 3 and the Fed Buys