Question

Best National Bank operates with a 20% required reserve ratio. One day a depositor withdraws $500 from his or her checking account at this bank. As a result, the bank's reserves:
A. Fall by $400
B. Fall by $500
C. Fall by $100
D. Rise by $500
E. RIse by $100

Answer 1

C. Fall by $100

When a depositor withdraws $500 from their checking account, the bank's reserves decrease by the required reserve ratio of 20% of $500, which is $100. Therefore, the bank's reserves fall by $100.