The Monetary System - End of Chapter Problem For each event described, determine the affect on the monetary base, the money multiplier, and the money supply. a. The Federal Reserve buys bonds using open market operations. Monetary base Money multiplier Money supply Answer Bank No effect Increase Decrease May increase or decrease b. The Fed increases the interest rate it pays banks for holding reserves. Monetary base Money multiplier Money supply Answer Bank Increase May increase or decrease No effect Decrease c. The Fed reduces its lending to banks through its Term Auction Facility. Monetary base Money multiplier Money supply Answer Bank Increase Decrease May increase or decrease No effect d. Rumors about a computer virus attack on ATMs increase the amount of money people hold as currency rather than demand deposits. Monetary base Money multiplier Money supply Answer Bank Decrease May increase or decrease No effect Increase e. The Fed flies a helicopter over 5th Avenue in New York City and drops newly printed $100 bills. Monetary base Money multiplier Money supply Answer Bank Decrease No effect May increase or decrease Increase