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:

Variable Expenses

Expenses that vary directly with the level of production or sales volume, such as raw materials and direct labor costs.

Net Income

The profit of a company after all expenses, taxes, and costs have been subtracted from total revenue.

Total Contribution Margin

The difference between total sales revenue and total variable costs, representing the amount available to cover fixed expenses and generate profit.

Variable Cost

Costs that fluctuate with the level of production or sales, such as raw materials or commission fees.