In response to the financial crisis of 2007 and the ensuing recession, the Fed announced three rounds of "quantitative easing," where the Fed purchased billions of dollars of securities. What impact would quantitative easing have on the monetary base?
A) The monetary base would increase.
B) The monetary base would decrease.
C) The monetary base would not change.
D) While the monetary base would change, it is impossible to predict in which direction.

Question

Quizplus · Accepted Answer

Quantitative easing involves the central bank purchasing securities, which increases the reserves of the banks from which these securities are bought. This action directly increases the monetary base, as the central bank is essentially creating money to buy these securities.

In Response to the Financial Crisis of 2007 and the Ensuing