Suppose the required reserve ratio is 10% and a depositor withdraws $500 from her chequable deposit.The money supply will _____ if the banking system does NOT hold any excess reserves.

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When a depositor withdraws $500, the bank's reserves decrease by $500. With a 10% reserve ratio, the bank must reduce its loans by $4500 to maintain the required reserves, leading to a total decrease in the money supply of $5000 ($500 withdrawal + $4500 reduction in loans).

Suppose the Required Reserve Ratio Is 10% and a Depositor