Assume that banks do not hold excess reserves and that households do not hold currency, so the only form of money is demand deposits. To simplify the analysis, suppose the banking system has total reserves of $500. Determine the money multiplier and the money supply for each reserve requirement listed in the following table. Reserve Requirement (percent) Simple Money Multiplier Money Supply (dollars)
5 - -
10 - -

A lower reserve requirement is associated with a money supply.
Suppose the Federal Reserve wants to increase the money supply by $200. Again, you can assume that banks do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to some of the U. S government bonds.