An increase of $200 billion in the money supply
The percentage of deposits that banks must maintain as reserves with the central bank is known as the necessary reserve ratio.
The money supply would expand if the FED purchased securities.
Amount divided by the statutory reserve ratio, or $20 billion divided by 10, equals $200 billion.
The percentage of deposits that banks must retain in reserves is indicated by the necessary reserve ratio. It is the proportion of deposits to necessary reserves. Banks are required to retain 10% of their deposits in necessary reserves if the statutory reserve ratio is 10%. Deposits of $20 million need necessary reserves to be retained at $2 million ($20 million multiplied by.10).
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