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A Federal Reserve publication notes that when economists analyze the money supply process they typically assume that the money multiplier is "independent of the
policy actions of the central bank."
Source: Michelle R. Garfinkle and Daniel L. Thornton, "The Multiplier Approach to the Money Supply Process: A Precautionary Note," Federal Reserve Bank of St. Louis Review, Vol.
73, No. 4, July/August 1991, p. 47.
Why do economists make this assumption?
A. The Fed rarely changes the money multiplier, so economists assume it will remain constant.
B. The money multiplier has nothing to do with the money supply.
C. The money multiplier is not affected by central bank actions.
D. The money multiplier is determined by a variety of factors over which the central bank has no control.
If the assumption is incorrect, then central bank's would be able to control the money supply through changes in the monetary base
multiplier.
changes in the money
