If the Fed buys $20 billion of U.S.bonds in the open market and the reserve requirement is 5 percent,M1 will eventually

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When the Fed buys $20 billion of U.S. bonds in the open market, it injects $20 billion into the banking system. With a reserve requirement of 5%, banks can lend out 95% of any new deposits, leading to a potential maximum increase in the money supply (M1) through the money multiplier effect. The money multiplier is 1 divided by the reserve requirement, which is 1/0.05 = 20. Therefore, the maximum increase in M1 is $20 billion * 20 = $400 billion.

If the Fed Buys $20 Billion of U