If the required reserve ratio is 25 percent and the Federal Reserve sells $100,000 worth of bonds,the money supply can potentially

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When the Federal Reserve sells $100,000 worth of bonds, it takes $100,000 out of the banking system. With a 25% reserve requirement, banks can lend out 75% of deposits, but the initial action here is the removal of money. The money multiplier is 1 / reserve ratio = 1 / 0.25 = 4. Thus, the money supply can potentially decrease by $100,000 * 4 = $400,000, as banks have less base money to support lending.

If the Required Reserve Ratio Is 25 Percent and the Federal