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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, loans _____ by _____.

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When Charlotte withdraws $8,000 from her checkable bank deposit, the bank's reserves decrease by $8,000 x 20% = $1,600. Since reserves serve as the basis for creating loans, the bank can now lend out $6,400 less than what it could before. Therefore, loans decrease by $6,400.

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