SITUATION: FEDERAL RESERVE EXPANDING THE MONEY SUPPLY Suppose the Federal Reserve decides that it wants to expand the money supply (M1) by 500 billion dollars, and they decide to use open market operations to accomplish their goal. Assume that there is no reserve requirement on checking accounts and that the actual money multiplier for M1 is 5, and expected to stay at 5. Refer to the situation above. What might happen to the economy in the long run? the economy would be stimulated the economy would be contracted prices would increase 100000 the monetary base would remain constant none of the above D

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