8. Banks and the fractional reserve system Aa Aa Which one of the following func

Question

8. Banks and the fractional reserve system Aa Aa Which one of the following functions that goldsmiths performed is the most important in terms of modern-day fractional reserve banking? O Goldsmiths stored gold for people in their safes O Goldsmiths issued paper receipts to the people who stored gold in their safes. O Goldsmiths made loans to people who did not necessarily have gold deposits by issuing additional paper receipts O The paper receipts, issued by the goldsmiths, were accepted by merchants as a means of payment.

Explanation / Answer

Correct option is (3).

Goldsmiths issued loans to customers, which is the core of fractional reserve system, where banks keep a required proportion of total deposits as reserves, and lend out the rest amount, thereby increasing credit and increasing money supply.

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