Suppose the required reserve ratio is 10 percent, and banks hold no excess reserves. If an individual withdraws $20 million from Bank Zip,

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When an individual withdraws $20 million from Bank Zip and the required reserve ratio is 10 percent, the bank's reserves decrease by $20 million. Since banks hold no excess reserves, this withdrawal directly impacts the bank's ability to lend. For every dollar of reserves, banks can lend out $10 (given a 10% reserve ratio). Therefore, a $20 million reduction in reserves means the bank must decrease its lending by $200 million (10 times the withdrawn amount). However, the question seems to contain a mistake in its options, as none directly reflect this calculation. The closest option, suggesting a decrease in loans or bonds, is A) by $18 million, but this does not accurately represent the typical multiplier effect in banking. The correct theoretical decrease should be much larger, given the reserve ratio.

Suppose the Required Reserve Ratio Is 10 Percent, and Banks