Suppose that the money multiplier is 3. If the monetary base increases by $1 million, the quantity of money will
A) decrease by $3 million.
B) increase by $3 million.
C) decrease by $300,000.
D) increase by $300,000.

Question

Quizplus · Accepted Answer

According to the money multiplier formula, the quantity of money equals the monetary base multiplied by the money multiplier. In this case, if the money multiplier is 3 and the monetary base increases by $1 million, the quantity of money will increase by 3 times that amount, which is $3 million. Therefore, the correct answer is B.

Suppose That the Money Multiplier Is 3