If the actual money multiplier equals the potential money multiplier and if the Federal Reserve wishes to increase the money supply by $500 when the reserve ratio is 10 percent, it should

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The reserve ratio is 10 percent, so the potential money multiplier is 1/0.1 = 10. If the actual money multiplier equals the potential money multiplier, then banks have loaned out all excess reserves and there is no excess reserve to make new loans. Therefore, to increase the money supply, the Fed needs to inject new reserves into the banking system. Buying government bonds from the public injects new reserves into the banking system and increases the money supply, so the Fed should buy $50 of government bonds.

If the Actual Money Multiplier Equals the Potential Money Multiplier