Question

Suppose you withdraw $100 from your checking account. What impact would this action alone have on the following?

a. the money supply
b. your bank's required reserves
c. your bank's excess reserves

Answer 1

When you withdraw $100 from your checking account, it decreases the money supply, your bank's required reserves, and your bank's excess reserves.

Step-by-step explanation:

When you withdraw $100 from your checking account, it has the following impact:

1. a. The money supply decreases by $100. This is because the money you withdraw is no longer in the banking system and is no longer available for others to use as a medium of exchange.
2. b. Your bank's required reserves decrease by $100. Required reserves are the amount of deposits that banks are legally required to hold as a percentage of their liabilities, and your withdrawal reduces the bank's liabilities.
3. c. Your bank's excess reserves decrease by $100. Excess reserves are the reserves held by banks above the required amount, and your withdrawal reduces those reserves.