Suppose You Withdraw $1,000 from Your Checking Account

question 108

Multiple Choice

Suppose you withdraw $1,000 from your checking account. If the reserve requirement is 20 percent, how does this transaction affect the supply of money and the excess reserves of your bank?

• A) There is no change in the supply of money; your bank's excess reserves are reduced by $800.
• B) There is no change in the supply of money; your bank's excess reserves are reduced by $200.
• C) The money supply increases by $1,000, and the excess reserves of your bank are reduced by $800.
• D) The money supply increases by $1,000, and the excess reserves of your bank are reduced by $200.

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