Final answer:
The Bank of Wachovia would lend out $9,000 of a $10,000 deposit if it has a reserve ratio of 0.1 or 10%. This lending practice is a standard way banks increase the money supply. Reserve requirements have varied historically and were made 0% during the pandemic-induced recession as of March 2020.
Step-by-step explanation:
If the Bank of Wachovia receives a $10,000 deposit and maintains a reserve ratio of 0.1, or 10%, it would be required to hold $1,000 (10% of $10,000) in reserves. The loanable amount, which is the rest of the money minus the reserves, would thus be $9,000 (90% of $10,000). This process of lending out the money that is not held in reserve is how banks contribute to the expansion of the money supply. It's important to note that, historically, the Federal Reserve has set different reserve requirements for different levels of deposits, but as of March 2020, reserves requirements were reduced to 0% to provide more flexibility to banks during the pandemic-induced recession. However, prior to this change, in a scenario with a 10% reserve requirement, the bank would lend out the 90% that it is not required to hold in reserves.