Assume a money multiplier of 4 and a government expenditure of $20 million. If the Treasury borrows $20 million from the banking system while the banks have excess reserves, the money supply will

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The money multiplier of 4 means that $20 million of government expenditure will lead to an increase in the money supply by $80 million ($20 million x 4). If the Treasury borrows $20 million from the banking system, this will not affect the money supply as the borrowed amount will be offset by a reduction in banks' excess reserves. Therefore, the money supply will still rise by $80 million due to the government's expenditure.

Assume a Money Multiplier of 4 and a Government Expenditure