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
A bank turns deposits into loans instead of merely storing them. In doing so it acts as anThe central bank of the United States, which regulates banks and runs monetary policy, is Across a whole banking system, the amount of money that can be created is worked out with When banks hold only the minimum reserves required, or barely more, the situation is calleIn a mortgaged house, the home itself is the asset, while the mortgage is the:Subtracting what is owed from the value of the assets gives the:On that layout, liabilities are shown on the right and assets on the:Because of its two-column shape, that statement is often nicknamed a: