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If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million worth of government bonds, bank reserves
increase by $20 million and the money supply eventually increases by $400 million.
increase by $20 million and the money supply eventually increases by $100 million.
decrease by $20 million and the money supply eventually decreases by $400 million.
decrease by $20 million and the money supply eventually decreases by $100 million

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