What is meant by the money multiplier? Assume the money supply is defined as Cash Transaction Deposits. Assume that the money multiplier takes one year to run its course. Further, assume that the Federal Reserve has been growing the money supply at five percent per year and the inflation rate has been steady at the target amount of 2 percent. The Fed now believes that the inflation rate for next year will be 3 percent. Given the data below, approximate the amount by which the Federal Reserve should alter the monetary base. Explain your answer. MS = the money stock = 4 Trillion dollars cc = the proportion of deposits held by the public as cash and equals .25 rr = the reserve requirement and equals .10 er = excess reserves and equals .032 sd/td = the savings deposit transaction deposit ratio and equals1.8 rs = required reserves on savings accounts and equals .01