Final answer:
The maximum amount the bank can lend out from a $10,000 deposit with a 10% reserve ratio is $9,000. This lending could potentially increase the money supply by up to $90,000, considering the multiplier effect in banking and subsequent lending.
Step-by-step explanation:
If a bank with no excess reserves receives a deposit of $10,000 and the required reserve ratio is 0.10 (10%), the bank must keep $1,000 (10% of $10,000) in reserves and can lend out up to $9,000. This is because the bank is only required to keep a fraction of the deposit as reserves, allowing it to lend out the rest. The lending activity increases the money supply because when the bank lends the $9,000, the recipients of the loans will likely deposit the money into their own bank accounts, initiating the creation of new money through the banking system's ability to lend out deposits.
Considering the multiplier effect of banking, the initial loan can result in a maximum expansion of the total money supply by a factor of the reciprocal of the reserve ratio. If the reserve ratio is 0.10, the reciprocal is 10. Therefore, the maximum potential increase in the money supply is $9,000 multiplied by 10, equating to $90,000. However, it's important to note that this increase occurs only if each subsequent bank keeps lending the maximum amount allowable after retaining the necessary reserves.