Ryan Cozzens withdraws $400 from his checking account atthe local bank and keeps it in

Chapter 5, Problem 11

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Ryan Cozzens withdraws $400 from his checking account atthe local bank and keeps it in his wallet.a. How will the withdrawal change the T-account of the localbank and the money supply?b.If the bank maintains a reserve ratio of 10%, how will thebank respond to the withdrawal? Assume that the bank respondsto insufficient reserves by reducing the amount ofdeposits it holds until its level of reserves satisfies its requiredreserve ratio. The bank reduces its deposits by callingin some of its loans, forcing borrowers to pay back theseloans by taking cash from their checking deposits (at thesame bank) to make repayment.c. If every time the bank decreases its loans, checkable bankdeposits fall by the amount of the loan, by how much willthe money supply in the economy contract in response toRyans withdrawal of $400?d.If every time the bank decreases its loans, checkablebank deposits fall by the amount of the loan and thebank maintains a reserve ratio of 20%, by how muchwill the money supply contract in response to a withdrawalof $400?