If the Money Multiplier Is 3 and the Fed Buys

question 46

Multiple Choice

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds,what happens to the money supply?

• A)it increases by $100,000
• B)it increases by $150,000
• C)it decreases by $100,000
• D)it decreases by $200,000

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Definitions:

Call Provision

A feature on a bond allowing the issuer to redeem the bond before its maturity date.

Premium Bond

A bond sold at a price higher than its face value, typically because it offers interest rates higher than the current market rates.

Discount Bond

A bond sold for less than its face value, where the difference between the purchase price and the face value represents the investor's return.