If the Money Multiplier Is 3

question 160

Multiple Choice

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.

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Definitions:

Multifactor APT

A model that describes the expected return on a security based on its exposure to multiple risk factors and the risk premia associated with those factors.

Macro Factors

Macro Factors are large-scale, national, or international elements or forces that affect the economy or the financial markets, such as inflation, unemployment, and fiscal policy.

Risk Premium

The additional return expected by an investor for taking on a higher risk compared to a risk-free investment.

Multifactor APT

A finance model that describes asset prices by taking into account several risk factors, expanding on the Arbitrage Pricing Theory by including multiple variables.