If the Fed decreases the monetary base by $100 million and the money multiplier is 4,M1 will
A)rise by $400 million.
B)fall by $400 million.
C)rise by $25 million.
D)fall by $25 million.

Question

Quizplus · Accepted Answer

If the Fed decreases the monetary base by $100 million and the money multiplier is 4, it means that the total money supply will decrease by 4 times the monetary base. So, M1 will fall by $400 million (4 x $100 million).

If the Fed Decreases the Monetary Base by $100 Million