Assume that the reserve requirement is 20 percent. If the Federal Reserve buys $5,000 worth of bonds, the largest possible increase in the money supply is $ . If someone deposits in a bank $5,000 that she had been hiding in her cookie jar, the largest possible increase in the money supply is $ . All other things equal, if the Federal Reserve buys $5,000 worth of bonds, the money supply will expand than if someone deposits in a bank $5,000 that she had been hiding in her cookie jar.

Compute the money multiplier as follows.

Money Multiplier = 5

Hence, the money multiplier is  5

Compute the cash supply if the central bank purchases $5,000 worth of bonds as follows:

Money supply = 5 × 5,000

Money supply = $25,000

Hence, the raise in the money supply is $25,000

Compute the rise in money supply, if someone deposits in a bank $5,000:

Excess reserves = (1 - 20%) × 5,000

Excess reserves = (1 - 0.2) x 5,000

Excess reserves = 0.8 x 5,000

Excess reserves = $4,000

Money supply = Money multiplier x Excess reserves

Money supply = 5 x 4,000

Money supply = $20,000

The fiscal inventory will increment if the Fed purchases $5,000 worth of bonds. The two stores will prompt money related development. Bit Fed's stores is new cash which is covered up in the container. This suggests $5,000 from the treat container is now part of the cash supply.  

In this manner, every single other thing equivalent, if the Federal Reserve purchases $5,000 worth of securities, the cash supply will extend more than if somebody stores in a bank $5,000 that she had been covering up in her treat container.