can you explain for me the question 2(iii)how can they get $500 is the new value of excess reserve
This is how the College Board explained it: the reserve ratio is 10% which means the simple money multiplier is 10 (1/.10). Therefore, a $500 withdrawal would contract the money supply by ten times the amount of the withdrawal or $5000. This assumes that the banks are fully loaned out. The question asks, what is the "initial" change before the money contraction, which would be $500. This question caused a tremendous amount of replies on the Lystserve after the AP exam. I hope I have answered your question.