Answer:
increase by $20 million and the money supply eventually increases by $250 million.
Explanation:
The reserve requirement is 8%.
The bank does not hold any excess reserves.
The fed purchases $20 million of government bonds. This would the reserve with the bank to increase by $20 million.
The money supply will increase by $20 million times money multiplier.
The increase in money supply
= [tex]\frac {1}{RR}\times Change\ in\ reserves[/tex]
= [tex]\frac {1}{0.08}\times 20 million[/tex]
= $250 million