Which one of the following functions that goldsmiths performed was most important in the development of modern-day fractional reserve banking? Goldsmiths stored gold for people in their vaults. Goldsmiths issued paper receipts to people who stored gold in the goldsmiths’ vaults. By issuing additional paper receipts, goldsmiths made loans to people who did not necessarily have gold deposits. The paper receipts issued by the goldsmiths were accepted by merchants as a means of payment.

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Monetary Policy

Monetary policy means the process through which a central bank or other financial authorities manage the money supply in an economy. It is an attempt to reduce inflation and contributes to the stable gross domestic product (GDP) to lower unemployment. The monetary authority reduces the interest rate for price stability in a nation’s currency. The central bank of a nation governs monetary policies and controls the overall money supply available to banks and customers.