In an open-market operation, the Fed buys $30 million of government bonds from individual investors. If the required reserve ratio is 15 percent, the largest possible increase in the money supply that could result is $ million, and the smallest possible increase is $ million.

A(1): If the required reserve ratio is 15 percent, the largest possible increase in the money supply that could result is $200 million, and the smallest possible increase is $30 million.

Explanation:

Given; Reserve ratio=15%=0.15

Increase in deposits = Money multiplier*Deposit

Increase in deposits =(1/ Reserve ratio)*Deposit

Increase in deposits =(1/0.15)*30,000000

Increase in deposits=6.667*30000000

Increase in deposits =$200,000000

The smallest possible increase is the $30,000000 held as reserves.