The excess reserves will rise by $9 billion after a deposit of $10 billion in additional money into a checking account within the financial system.
While retaining part of the required reserves on hand, the bank will lend out the additional reserves. When such a loan is made, the money supply is boosted. In this approach, banks "create" money to increase the supply. When a bank uses excess reserves to fund loans, the money supply expands.
A bank's needed reserves and excess reserves will both rise as a result of new deposits. If a bank has $100,000 in extra reserves, it can only lend out $100,000; however, if the banking system as a whole has $100,000 in excess reserves, then additional loans totaling more than $100,000 can be made via the system.
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