Suppose the Federal Reserve System has a required reserve ratio of 0.20 and there are no excess reserves in the system.If the Open Market Committee buys $20 million of securities from the commercial banking system,the total lending capacity of the system

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The Open Market Committee buying $20 million of securities from the commercial banking system increases the reserves of the banks by $20 million. Given the required reserve ratio of 0.20, this increase in reserves allows the banks to lend out an additional $100 million (i.e. $20 million divided by 0.20). Therefore, the total lending capacity of the system increases by $100 million.

Suppose the Federal Reserve System Has a Required Reserve Ratio