If the Fed Decreases the Monetary Base by $100 Million

question 25

Multiple Choice

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.

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Definitions:

Demand

The quantity of a product or service that consumers are willing and able to purchase at various prices during a given period.

British Pound

The currency of the United Kingdom, often symbolized as £ and known officially as the pound sterling.

Economic Boom

A period of significant economic growth, expansion, and prosperity.

Recession

A significant decline in economic activity spread across the economy, lasting more than a few months, visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.