Assume that the M1 multiplier is 3.0 and the monetary base is $200 billion. If M1 is currently equal to $600 billion and the Federal Reserve wishes to raise the level to $690 billion, the monetary base should be expanded by

Question

Quizplus · Accepted Answer

M1 multiplier = M1 / Monetary base
3.0 = 600 billion / 200 billion
Monetary base needed to reach $690 billion in M1 = M1 / M1 multiplier
Monetary base needed = 690 billion / 3.0
Monetary base needed = $230 billion
Increase in monetary base needed = Monetary base needed - Initial monetary base
Increase in monetary base needed = $230 billion - $200 billion
Increase in monetary base needed = $30 billion.

Assume That the M1 Multiplier Is 3