If the Fed sells $200 million in government bonds,the total money supply will:
A) decrease by more than $200 million.
B) decrease by less than $200 million but more than $0 million.
C) decrease by exactly $200 million.
D) not change.

Question

Quizplus · Accepted Answer

When the Fed sells government bonds, it takes money out of circulation, decreasing the money supply. Due to the money multiplier effect, the total decrease in the money supply will be more than the initial $200 million.

If the Fed Sells $200 Million in Government Bonds,the Total