If the M1 multiplier is 3 and the Fed engages in open-market sales in the amount of $3 billion, then M1 will Group of answer choices increase by $3 billion. decline by $9 billion. decline by $3 billion. increase by $9 billion.

Question

Jones

Business

6 April, 01:51

If the M1 multiplier is 3 and the Fed engages in open-market sales in the amount of $3 billion, then M1 will Group of answer choices increase by $3 billion. decline by $9 billion. decline by $3 billion. increase by $9 billion.

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Oliver · Answer 1

increase by $9 billion.

Explanation:

If the M1 multiplier is 3 and the Fed engages in open-market sales in the amount of $3 billion, then M1 will increase by $9 billion.

The ratio of money supply to monetary base is called the money multiplier.

The money-multiplier process explains how an increase in the monetary base causes the money supply to increase by a multiplied amount

Hence in the Scenario, the money supply 9 billion because $3 billion (monetary base) x 3 (money multiplier) = $9billion