If the Fed increases the monetary base by $40 billion through open-market operations:
A) GDP will increase by $40 billion.
B) the price level will increase by $40 billion.
C) the U.S. government debt held by the public has been reduced by $40 billion.
D) government spending has increased by $40 billion.

Question

Quizplus · Accepted Answer

Increasing the monetary base through open-market operations involves the Fed buying government securities, which reduces the amount of government debt held by the public. The increase in the monetary base does not necessarily result in an increase in GDP, the price level, or government spending.

If the Fed Increases the Monetary Base by $40 Billion