The money supply of a country equals the sum of monetary base times the money mu

Question

The money supply of a country equals the sum of monetary base times the money multiplier. Monetary base equals the sum of domestic reserves and foreign reserves. Domestic reserves include the domestic government securities. The foreign reserves include foerign currencies and foreign government securities. At the same time, there are also two kinds of intervention of the Fed in the foreign exchange market to buy/sell currencies. When the Fed keeps the money supply constant, it is callled sterilized intervention or sterilization. If the Fed does not keep the money supply constant, it is callled the non-sterilized intervention or non-sterilization. Therefore, under non-sterilized intervention, money supply will increase if the Fed




A. buys Japanese yen.

B. buys U.S. dollar.

C. sells U.S. dollar.

D. only A and B.

E. only A and C.

Explanation / Answer

B. buys U.S. dollar.

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