Assume that a single commercial bank has no excess reserves and that the reserve ratio is 20 percent. If this bank sells a bond for $1,000 to a Federal Reserve Bank, it can expand its loans by a maximum of

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When the bank sells a bond for $1,000 to the Federal Reserve, it receives $1,000 in reserves. With a reserve ratio of 20%, the bank must keep $200 (20% of $1,000) as reserves and can loan out the remaining $800.

Assume That a Single Commercial Bank Has No Excess Reserves