Assuming a reserve requirement of 10 percent,if the Fed sells $20 billion in bonds to the public,the lending capacity of the system will eventually

Question

Quizplus · Accepted Answer

When the Fed sells $20 billion in bonds to the public, it takes $20 billion out of the banking system. With a 10 percent reserve requirement, banks could have originally created up to $200 billion in new loans with that $20 billion (since $20 billion is 10% of $200 billion). Therefore, the system's lending capacity decreases by $200 billion.

Assuming a Reserve Requirement of 10 Percent,if the Fed Sells