If we assume a ten percent required reserve rate, and banks not holding any excess reserves and no change in currency holdings, an open market sale of $5 million of U.S. Treasury securities by the Fed, will result in deposits:

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A ten percent required reserve rate means that for every $1 deposited, the bank must hold $0.10 as reserves. Therefore, an open market sale of $5 million of U.S. Treasury securities by the Fed reduces the reserves of banks by $0.5 million (10% of the $5 million). Since the banks do not hold any excess reserves, this decrease in reserves will force them to reduce their deposits by $5 million (which is $50 million in deposits multiplied by the required reserve rate of 10%). Hence, deposits will decrease by $50 million.

If We Assume a Ten Percent Required Reserve Rate, and Banks