Suppose the required reserve ratio is 20 percent,and the Fed buys $1 million worth of bonds from the public.If the public deposits this amount into transactions accounts,the money supply will

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The required reserve ratio is 20%, therefore if the Fed buys $1 million worth of bonds, this creates $1 million in excess reserves for the banking system. As a result, the banks can lend out up to $4 million (5 times the excess reserves), leading to an increase in the money supply by $5 million. Therefore, the money supply will increase directly by $1 million in reserve deposits, with an additional lending capacity of $4 million created for the banking system.

Suppose the Required Reserve Ratio Is 20 Percent,and the Fed