In the goldsmith (Lala) story, money created 'out of thin air' illustrates:
Acounterfeiting of currency notes
Bcredit creation by banks lending out deposits
Ca simple barter exchange
Daccumulation of foreign exchange reserves
Answer & Solution
Correct answer: B. credit creation by banks lending out deposits
Lala lends out gold he holds for others, creating extra paper-receipt 'money' — exactly how banks create credit from deposits.
Related questions
The total stock of money in circulation among the public at a point of time is called:Acting as the 'lender of the last resort' to commercial banks is a function performed by tIn a barter economy, exchange requires that each party wants exactly what the other offersCommercial banks are able to create credit primarily on the basis of their:The currency held by the public plus the reserves of commercial banks together form the:Deposits that can be withdrawn on demand, such as in a current or savings account, are calThe rate at which the central bank lends short-term funds to commercial banks is the:The minimum percentage of deposits that commercial banks must keep with the central bank i