7. Each time a bank makes a loan, money is created. This can be shown in the table below, with the money supply measured as M1 (currency plus checking accounts). Action Loan Deposit Quinn paid $1,000 for gig as wedding singer $1,000 David borrows money for free-range egg business $900 Brooke paid $900 by David to building chicken coops $900 Patrick borrows money to build art studio for his cat $810 Jonathan sells $810 of materials to Patrick at his pet hobby store $810 Rainer borrows money to practice to be on The Voice $729 Avalon gets paid to train Rainer at her singing academy $729 $3,439 Total M1: So Quinn's side hustle and initial deposit of $1,000 has turned into over $3,400 in cash. In this example, I've assumed the bank keeps 10% of deposits in reserve the minimum allowable for most banks in the U.S.), and if the process continued, the initial $1,000 would actually turn into $10,000 of deposits, with $9,000 being created by the bank. a. If this bank failed, is it possible for more than $1,000 to be lost? If so, how much of the $10,000 could be lost? Assume that if there is a run on the bank, Quinn gets all his money out first. b. If this bank were in a rural town in the Depression, mainly servicing farmers, list two ways that the banks failure would make it hard for farmers to pay their mortgages in cash (assume the mortgages are at other banks.) 1) 7. Each time a bank makes a loan, money is created. This can be shown in the table below, with the money supply measured as M1 (currency plus checking accounts). Action Loan Deposit Quinn paid $1,000 for gig as wedding singer $1,000 David borrows money for free-range egg business $900 Brooke paid $900 by David to building chicken coops $900 Patrick borrows money to build art studio for his cat $810 Jonathan sells $810 of materials to Patrick at his pet hobby store $810 Rainer borrows money to practice to be on The Voice $729 Avalon gets paid to train Rainer at her singing academy $729 $3,439 Total M1: So Quinn's side hustle and initial deposit of $1,000 has turned into over $3,400 in cash. In this example, I've assumed the bank keeps 10% of deposits in reserve the minimum allowable for most banks in the U.S.), and if the process continued, the initial $1,000 would actually turn into $10,000 of deposits, with $9,000 being created by the bank. a. If this bank failed, is it possible for more than $1,000 to be lost? If so, how much of the $10,000 could be lost? Assume that if there is a run on the bank, Quinn gets all his money out first. b. If this bank were in a rural town in the Depression, mainly servicing farmers, list two ways that the banks failure would make it hard for farmers to pay their mortgages in cash (assume the mortgages are at other banks.) 1)