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Charlotte withdraws $8000 from her chequable 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)Refer to Scenario: Money Supply Changes II.As a result of the withdrawal,loans _____ by _____.

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When Charlotte withdraws $8000, the bank must reduce its loans by the amount of the withdrawal minus the reserve requirement. With a 20% reserve requirement, the bank must keep $1600 in reserves ($8000 * 0.20), so it can only reduce loans by $6400 ($8000 - $1600).

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