Calculate maximum change in money supply from transaction

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Matthew and Kyle live and bank in Texas. The reserve requirement is 20%. If Matthew sells government bonds to Kyle for $1,000,000, will the money supply likely rise, fall, or not change?

(Hint: Is the Fed buying or selling or not taking part in this transaction?) It will likely ________________. If it will rise or fall, calculate the maximum change in the money supply from this transaction, showing your work.

Reference no: EM13781816

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