Question

Suppose you have $10,000 in your checking account. you withdraw $500 cash from your account and hide it under your pillow for future use. if the required reserve ratio is 10%, what will be the maximum impact on money supply today as a result of your action?
a. the money supply will decrease by $4,500.
b. the money supply will decrease by $5,000.
c. the money supply will decrease by $500.
d. there will be no impact on the money supply.

Answer 1

A, the money supply (how much currency in a country's economy at a time) is going to decrease by $4500!  A required reserve ratio is basically a sort of rule that the government sets that says how much of a person's deposits must be set towards reserves.  

Answer 2

Answer:

a. the money supply will decrease by $4,500.

Explanation:

The government  says basically a sort of rule that how much of a person's deposits must be set towards reserves.