"When the Fed makes an open market purchase of government securities, the quantity of money will eventually decrease by a fraction of the initial change in the monetary base." Is the previous statement correct or incorrect? Explain your answer

What will be an ideal response?

The statement is wrong on two counts. First, if the Fed makes an open market purchase of government securities, the quantity of money will increase rather than decrease. Second, the money multiplier points out that the change in the quantity of money will be greater than, not less than, the initial change in the monetary base.