Use the following to answer questions:
The reserve requirement is 10% and Jack withdraws $5000 travel money from his chequable deposit.Assume that banks do not hold any excess reserves and that the public holds no currency,only chequable bank deposits.
-(Scenario: Money Supply Changes)Refer to Scenario: Money Supply Changes.As a result of the withdrawal,required reserves _____ by _____.

Question

Quizplus · Accepted Answer

The reserve requirement is 10%, which means that for every $1 of deposits, banks are required to hold $0.10 in reserves. Therefore, Jack's withdrawal of $5000 reduces bank deposits by $5000. The required reserves then decrease by 10% of $5000, which is $500. This means that banks no longer need to hold $500 in reserves, resulting in a decrease in required reserves.

Use the Following to Answer Questions