Question

Scenario: Money Supply Changes II Charlotte withdraws $8,000 from her checkable bank deposit to pay tuition this semester. Assume that the reserve requirement is 20% and that banks do not hold excess reserves. As a result of the withdrawal, required reserves: don't change. decrease by $8,000. decrease by $1,600. decrease by $6,400.

Answer 1

Answer: decrease by $1,600

Explanation:

Charlotte withdraws $8,000 from her account. When she first paid in that $8,000, the bank had to keep some of it as a reserve requirement. That requirement was that they keep 20%.

Now that she is withdrawing the money, the bank would have to retrieve that 20% from the reserve requirement in order to give it back to Charlotte.

That 20% is:

= 20% * 8,000

= $1,600