If the required reserve ratio is 5 percent and the Federal Reserve sells $10,000 worth of bonds,the money supply can potentially

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When the Federal Reserve sells $10,000 worth of bonds, it takes $10,000 out of the banking system. With a required reserve ratio of 5%, banks can lend out 95% of their deposits. This means every dollar in reserves supports $20 in deposits ($1 / 0.05 = $20). Therefore, removing $10,000 from the banking system can potentially decrease the money supply by 20 times that amount, or $200,000.

If the Required Reserve Ratio Is 5 Percent and the Federal