Answer to Question #274252 in Macroeconomics for wow

Question

If the Fed wants to increase the money supply by $100 million does it have to buy more than $100 million of bonds, less than $100 million of bonds or exactly $100 million of bonds? Explain. 

Answer 1

If the Fed wants to increase the money supply by $100 million, then it have to buy less than $100 million of bonds, as we should take into consideration the money multiplier effect.