Suppose the required reserve ratio is 10 percent, and banks hold no excess reserves. If the Fed purchases $10 million worth of government bonds from Bank INF, the amount of reserves held by Bank INF will

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When the Fed purchases $10 million worth of government bonds from Bank INF, it pays for them by crediting Bank INF's account with the Fed. This increases Bank INF's reserves by $10 million. Since the required reserve ratio is 10 percent, this increase in reserves allows Bank INF to increase its loans by $90 million (the maximum amount of loans it can create is 10 times its increase in reserves). Therefore, Bank INF's reserves will increase by $10 million and its total deposits (and potential loans) will increase by $100 million.

Suppose the Required Reserve Ratio Is 10 Percent, and Banks