Suppose that the money multiplier is 6. If the monetary base increases by $1 million, the quantity of money will
A) increase by $6 million.
B) increase by $166,667.
C) decrease by $166,667.
D) decrease by $6 million.

Question

Quizplus · Accepted Answer

The money multiplier indicates how much the money supply will increase for a given increase in the monetary base. With a multiplier of 6, a $1 million increase in the monetary base will result in a $6 million increase in the money supply.

Suppose That the Money Multiplier Is 6