If the reserve requirement is 25% and a bank initially receives $10,000 in deposits, the amount of potential loans is $40,000.

Question

Quizplus · Accepted Answer

This is true because the reserve requirement of 25% means that the bank must hold onto 25% of the initial deposit ($10,000 x 0.25 = $2,500) and can lend out the remaining 75% ($7,500). This process can continue as the loaned out money is deposited into other banks, resulting in a potential loan amount of $40,000.

If the Reserve Requirement Is 25% and a Bank Initially