Answer:
the money supply decreases = $4,500
Explanation:
The calculation of given question is given below:-
Money multiplier = 1 ÷ Required reserve ratio
= 1 ÷ 0.1
= 10
Deposited amount = $8,000
Required Reserve ratio = 10%
Reserve = deposited amount × money multiplier
= $8,000 × 0.1
= $800
Loaned amount by the bank = deposited amount - Reserve
= $8,000 - $800
= $7,200
So, Money supply = money multiplier × monetary base
= 10 × $7,200
= $72,000
Before withdrawal the money supply = $72,000
Withdraw from bank = $500
Deposit amount will reduce = $7,500
Required Reserve ratio = 10%
Reserve = $7500 × 0.1
= $750
Loaned amount by the bank = $7,500 - $750
= $6,750
Money supply = money multiplier × monetary base
= 10 × $6,750
= $67,500
After withdrawal the money supply = $67,500
Decline is the money supply
= $72,000 - $67,500
= $4,500
So, the money supply decreases = $4,500
