A local bank receives a new deposit of $10,000. With a reserve requirement of 20%, how much can the bank potentially lend out to borrowers, assuming it has no other reserves? Consider how this impacts the overall money supply in the economy.

When a bank receives a deposit, it must keep a certain percentage, known as the reserve requirement, on hand and can lend out the rest. In this case, with a reserve requirement of 20%, the bank must keep $2,000 of the $10,000 deposit as reserves. This means the bank can lend out the remaining $8,000 to borrowers. When the bank lends out this money, it can be deposited in another bank, which will then keep 20% of that amount as reserves again, allowing even more money to be lent out. This process helps increase the overall money supply in the economy, as each dollar deposited can lead to multiple dollars being created through lending.