What is the history behind the idea of a fractional reserve banking system?
What will be an ideal response?
Early traders used gold in making transactions. They realized that it was inconvenient and not safe to move gold for every transaction. So they deposited their gold with a goldsmith. The goldsmiths had safes for gold and precious metals, which they often kept for consumers and merchants. They issued receipts for these deposits. Receipts came to be used as money in place of gold because of their convenience. The goldsmiths became aware that the stored gold was never fully redeemed. The goldsmiths realized they could “loan” gold by issuing paper receipts to borrowers, who agreed to pay back gold plus interest. Such loans originated “fractional reserve banking,” because the actual gold in the vaults became only a fraction of the receipts held by borrowers and owners of gold.
You might also like to view...
Resource use is allocatively efficient if the
A) total cost of what the resource produces is less than the total benefit of what is produced. B) total cost of what the resource produces is equal to the total benefit of what is produced. C) marginal benefit of what the resource produces has diminished to zero. D) marginal cost of what the resource produces is equal to the marginal benefit of what is produced.
A firm practicing group price discrimination that has constant marginal cost will
A) maximize total profit by maximizing profit for each group separately. B) will charge the same price to all groups. C) will act like a monopoly and treat all groups the same. D) sets p = MC.
If bagels and croissants are substitute goods, which of the following is likely to occur if the price of bagels has decreased?
A) The demand curve for bagels shifts to the right. B) A leftward movement along the bagel demand curve. C) The demand curve for croissants shifts to the right. D) The demand curve for croissants shifts to the left.
Which of the following causes the supply of leather jackets to decrease?
a. an increase in the price of leather jackets b. an increase in the price of leather c. a decrease in the price of zippers d. an increase in the number of motorcycles e. a decrease in consumer income