If the money multiplier is 3.5, a $10 billion increase in the monetary base
A) increases the quantity of money by $35 billion.
B) increases the quantity of money by $2.86 billion.
C) increases the quantity of money by $3.5 billion.
D) increases the quantity of money by $10 billion.

Question

Quizplus · Accepted Answer

The money multiplier indicates how much the money supply increases for each dollar increase in the monetary base. With a multiplier of 3.5, a $10 billion increase in the monetary base results in a $35 billion increase in the money supply.

If the Money Multiplier Is 3