The reserve ratio is 10 percent,banks do not hold excess reserves,and people hold only deposits and no currency.When the Fed sells $20 million worth of bonds to the public,bank reserves

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When the Fed sells $20 million worth of bonds to the public, people will pay for the bonds with their deposits. As a result, bank reserves decrease by $20 million (10% of $20 million). Since banks do not hold excess reserves, their ability to make new loans is reduced by $180 million (the maximum amount that could be created through the money multiplier process when the reserve requirement is 10%). Therefore, the money supply eventually decreases by $200 million (10 times the decrease in reserves), assuming no other changes in the economy.

The Reserve Ratio Is 10 Percent,banks Do Not Hold Excess