Assume that the Federal Reserve buys government bonds from commercial banks.

Based only on this transaction, will the level of required reserves in the commercial banks increase, decrease, or remain the same?

Why?

The required reserves in the commercial banks will remain the same based on this transaction only as a Federal Reserve purchase would not affect the reserves initially.

A commercial bank's required reserves are based on their customer's demand deposits. Assets that are sold like bonds do not effect the reserve requirements. When the Federal Reserve Bank buys government bonds from the commercial bank they supply more money to the economy. The funds that commercial banks receive from selling bonds will be loanable funds to their customers. At this point the reserve requirement stay unchanged.c