Suppose the money multiplier in the United States is 4. If the Fed wants to expand the money supply by 600 it should:

Question

Quizplus · Accepted Answer

The money multiplier formula is the inverse of the reserve requirement. If the money multiplier is 4, this means that for every dollar the Fed injects into the banking system, the money supply expands by 4 dollars. Therefore, to expand the money supply by 600, the Fed should inject 600 / 4 = 150. Buying government securities worth 150 achieves this.

Suppose the Money Multiplier in the United States Is 4