If the reserve requirement was 10 percent, a $100 deposit could result in a ________ increase in new deposits for all banks in the system.

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Quizplus · Accepted Answer

With a 10 percent reserve requirement, each dollar deposited can theoretically support up to $10 in new loans across the banking system. This is because the initial deposit is lent out minus the reserve, and each subsequent deposit created by the lending is subject to the same process. Therefore, a $100 deposit could result in up to $1000 in new deposits across all banks, as calculated by the money multiplier formula (1/reserve requirement), which in this case is 1/0.10 = 10, making the total potential increase in deposits $1000.

If the Reserve Requirement Was 10 Percent, a $100 Deposit