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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.
-(Scenario: Money Supply Changes II) Look at the scenario Money Supply Changes II. As a result of the withdrawal, excess reserves _____ by _____.

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The reserve requirement is 20%, which means that for every $100 deposited, the bank must hold $20 in reserves. Charlotte withdraws $8,000, reducing the bank's deposits by $8,000. The bank is now required to hold ($8,000 x 0.20) = $1,600 in reserves, which is the same amount as before the withdrawal. Therefore, the bank has excess reserves of $6,400 less than before the withdrawal. So, excess reserves decrease by $6,400.

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