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

Name: If the Fed sells $5 billion of U.S.bonds in the open market and the reserve requirement is 5 percent,M1 will eventually
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Question

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When the Fed sells $5 billion of U.S. bonds, it reduces the reserves in the banking system. With a reserve requirement of 5%, the money multiplier is 1/0.05 = 20. Therefore, the money supply (M1) will decrease by $5 billion * 20 = $100 billion.

If the Fed Sells $5 Billion of U