If a bank faces a reserve requirement of 10%, then the total potential impact of an initial deposit of $100,000 is most likely to be:

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Quizplus · Accepted Answer

The potential impact of an initial deposit of $100,000 with a 10% reserve requirement is $1,000,000. This is because the bank can lend out 90% of each deposit it receives, which then gets redeposited and lent out again, creating a multiplier effect. The money multiplier formula is 1/reserve requirement, so 1/0.1 = 10. Therefore, $100,000 * 10 = $1,000,000.

If a Bank Faces a Reserve Requirement of 10%, Then