If the actual money multiplier equals the potential money multiplier, and if the Fed wishes to reduce the money supply by $1 million when the reserve ratio is 10 percent, then the Fed should

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When the reserve ratio is 10 percent, the potential money multiplier is 1 divided by the reserve ratio, which equals 10. To reduce the money supply by $1 million, the Fed should sell government securities in an amount that, when multiplied by the money multiplier, equals the desired decrease in the money supply. Selling $100,000 of government securities would reduce the money supply by $1 million when the money multiplier is 10 (since $100,000 * 10 = $1,000,000).

If the Actual Money Multiplier Equals the Potential Money Multiplier