If the central bank sells euro 1 million of bonds and banks reduce their borrowings from the central bank by euro 1 ?million, predict what will happen to the money supply.
A. The monetary base would rise by euro 2 ?million, leading to an increase in the money supply
B. The monetary base would fall by euro 2 ?million, leading to a decline in the money supply
C. The sale of bonds would offset the reduction in borrowings so there would be no change in the monetary base and money supply
D. The effect on the money supply is ambiguous