After this process has been repeated as many times as possible, that $1000 you originally deposited in your bank can actually be turned into as much as $10,000 in the overall money supply. You can calculate the $10,000 by dividing your initial $1,000 deposit by 10%. In this way, the total money supply in the economy increases when banks make loans. But, when the money supply increases, the consequence is inflation. Fractional reserve banking leads to inflation.