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

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When the Fed sells $20 billion in bonds in the open market, it takes $20 billion out of the banking system. With a reserve requirement of 20%, this means banks have $20 billion less in reserves, which reduces their lending capacity. The multiplier effect is 1 / reserve requirement, which is 1 / 0.20 = 5. Therefore, the decrease in lending capacity is $20 billion * 5 = $100 billion.

Assuming a Reserve Requirement of 20 Percent,if the Fed Sells