Any information that will help me answer this question, web sites,
samples, answers with explanations will be appreciated.

Suppose the required reserve ratio is 0.2.  If an extra $20 billion in
reserves is injected into the banking system through an open market
purchase of bonds, by how much can demand deposits increase?  Would
your answer be different if the required reserve ratio were 0.1?

Hi boobee-ga,

Based on the formula on the website listed below
http://employees.oneonta.edu/beckei/E110RecentExamQuestionsFromChap28-Solutions.html

1. A bank may increase its loans by the amount of its excess reserves.
    To solve for excess reserves, we first must calculate the amount
of required reserves using the following formula:
    Required Reserves  =  m x  Demand Deposits     in which m is the
required reserve ratio.
    Required Reserves = 8% of $150 million = .08 x $150 million = $12
million.
    The bank has reserves of $50 million. We solve for excess reserves
using the formula:
    Excess Reserves = Reserves - Required Reserves.
    Excess Reserves =  $50 million - $12 million = $38 million. 



The formula for requires reserve is
Reserve Reserve = m  x  Demand Deposits         m = required reserve
ratio

  $20B   =  0.2  x   DD


   $20B/.2 = DD


    $100  =  DD





If the required reserve is .1


  $20B   =  .1  x  DD


   $20/.1  =  DD


   $200  =  DD



So the answer is yes, if required reserve  is .1 the DD would be $200
where as when the required reserve was .2 the DD was $100


Hope this helps.


Best regards



jeanwil-ga

Thanks....