If Mary withdraws $5,000 from her checking account, how does this action affect the Banking System's balance sheet?

When Mary withdraws $5,000 from her checking account, this action leads to a change that can be accurately described by the chosen answer. The withdrawal decreases both reserves and checkable deposits by the same amount of $5,000.

To understand this, it's important to recognize the components of a bank's balance sheet. Bank assets include reserves (the cash that the bank holds) and loans, while liabilities primarily consist of deposits. When Mary withdraws funds, she is taking money out of her checkable deposit, which reduces that liability for the bank. Correspondingly, because the bank's reserves are reduced when cash is dispensed to Mary, the asset side of the balance sheet also decreases by the same amount.

This simultaneous reduction reflects the fundamental nature of the bank's operations, where deposits and reserves must balance each other. Therefore, both checkable deposits and reserves decrease by $5,000, accurately illustrating the impact of the withdrawal on the banking system's balance sheet.