If the money multiplier is 10,the purchase of $1 billion of securities by the Fed on the open market causes a
A)$10 billion decrease in the money supply.
B)$1 billion decrease in the money supply.
C)$1 billion increase in the money supply.
D)$10 billion increase in the money supply.

Question

Quizplus · Accepted Answer

If the money multiplier is 10, then the purchase of $1 billion of securities by the Fed on the open market will increase the money supply by 10 times that amount, which is $10 billion. Therefore, the correct answer is D, which indicates a $10 billion increase in the money supply.

If the Money Multiplier Is 10,the Purchase of $1 Billion