Answer the question on the assumption that the legal reserve ratio is 20 percent.Suppose that the Fed sells $500 of government securities to commercial banks (paid for out of commercial bank reserves) and buys $500 of securities from individuals, who deposit the cash in checking accounts.As a result of the given transactions, reserves in the banking system will

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The Fed's sale of $500 in securities to banks decreases reserves by $500, while the purchase from individuals increases reserves by $500 when deposited. The net effect is unchanged reserves.

Answer the Question on the Assumption That the Legal Reserve