Use the following to answer questions :
Scenario: Money Supply Changes
The reserve requirement is 10% and Jack withdraws $5,000 travel money from his checkable deposit. Assume that banks do not hold any excess reserves and that the public holds no currency, only checkable bank deposits.
-(Scenario: Money Supply Changes) Look at the scenario Money Supply Changes. After the withdrawal reserves _____, and checkable deposits _____ by $5,000.

Question

Quizplus · Accepted Answer

When Jack withdraws $5,000 from his checkable deposit, the bank loses $5,000 in reserves (10% of the withdrawal amount) and the money supply decreases by the same amount. Therefore, reserves decrease by $5,000 and checkable deposits decrease by $5,000 as well. Choice A is the correct answer.

Use the Following to Answer Questions