Gold receipts and loans from the goldsmiths.

Question

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Answer 1

Question

Chapter 35, Problem 1DQ

To determine

Gold receipts and loans from the goldsmiths.

Expert Solution & Answer

Explanation of Solution

During the ancient times traders started to use gold for transactions. But in certain circumstances, it was realized that it was unsafe and inconvenient to carry gold for weighing and to scrutinize its purity for each transactions. So, during the sixteenth century, the goldsmiths came into the picture and people started to deposit their gold at the goldsmiths. These goldsmiths will store their gold in the vaults for a particular fee. Once they receive the gold, the goldsmith will issue a receipt to the respective person for depositing the gold. These receipts went on to become the first type of paper money, as people very soon started to pay for commodities using these receipts from the goldsmith. Merchants willingly accepted these receipts, as they knew that they can exchange these receipts for gold or reuse them to buy commodities and services.

The main problem with these receipts were that in case the goldsmith gave more receipts than the value of gold that he had, will make them vulnerable “runs” or “panics”. For example, consider that the goldsmith gave away receipts equaling twice the value of gold he has in his reserves, and if all the people having these receipts come to him asking for gold for their receipts; then it will be impossible for him to meet the demand.

Economics Concept Introduction

Concept introduction:

Receipt: It is a written acknowledgment that something of value has been transferred from one party to another.

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Answer 2

Question

Chapter 35, Problem 1DQ

To determine

Gold receipts and loans from the goldsmiths.

Expert Solution & Answer

Explanation of Solution

During the ancient times traders started to use gold for transactions. But in certain circumstances, it was realized that it was unsafe and inconvenient to carry gold for weighing and to scrutinize its purity for each transactions. So, during the sixteenth century, the goldsmiths came into the picture and people started to deposit their gold at the goldsmiths. These goldsmiths will store their gold in the vaults for a particular fee. Once they receive the gold, the goldsmith will issue a receipt to the respective person for depositing the gold. These receipts went on to become the first type of paper money, as people very soon started to pay for commodities using these receipts from the goldsmith. Merchants willingly accepted these receipts, as they knew that they can exchange these receipts for gold or reuse them to buy commodities and services.

The main problem with these receipts were that in case the goldsmith gave more receipts than the value of gold that he had, will make them vulnerable “runs” or “panics”. For example, consider that the goldsmith gave away receipts equaling twice the value of gold he has in his reserves, and if all the people having these receipts come to him asking for gold for their receipts; then it will be impossible for him to meet the demand.

Economics Concept Introduction

Concept introduction:

Receipt: It is a written acknowledgment that something of value has been transferred from one party to another.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 35, Problem 1DQ

To determine

Gold receipts and loans from the goldsmiths.

Expert Solution & Answer

Explanation of Solution

During the ancient times traders started to use gold for transactions. But in certain circumstances, it was realized that it was unsafe and inconvenient to carry gold for weighing and to scrutinize its purity for each transactions. So, during the sixteenth century, the goldsmiths came into the picture and people started to deposit their gold at the goldsmiths. These goldsmiths will store their gold in the vaults for a particular fee. Once they receive the gold, the goldsmith will issue a receipt to the respective person for depositing the gold. These receipts went on to become the first type of paper money, as people very soon started to pay for commodities using these receipts from the goldsmith. Merchants willingly accepted these receipts, as they knew that they can exchange these receipts for gold or reuse them to buy commodities and services.

The main problem with these receipts were that in case the goldsmith gave more receipts than the value of gold that he had, will make them vulnerable “runs” or “panics”. For example, consider that the goldsmith gave away receipts equaling twice the value of gold he has in his reserves, and if all the people having these receipts come to him asking for gold for their receipts; then it will be impossible for him to meet the demand.

Economics Concept Introduction

Concept introduction:

Receipt: It is a written acknowledgment that something of value has been transferred from one party to another.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 35, Problem 1DQ

To determine

Gold receipts and loans from the goldsmiths.

Expert Solution & Answer

Explanation of Solution

During the ancient times traders started to use gold for transactions. But in certain circumstances, it was realized that it was unsafe and inconvenient to carry gold for weighing and to scrutinize its purity for each transactions. So, during the sixteenth century, the goldsmiths came into the picture and people started to deposit their gold at the goldsmiths. These goldsmiths will store their gold in the vaults for a particular fee. Once they receive the gold, the goldsmith will issue a receipt to the respective person for depositing the gold. These receipts went on to become the first type of paper money, as people very soon started to pay for commodities using these receipts from the goldsmith. Merchants willingly accepted these receipts, as they knew that they can exchange these receipts for gold or reuse them to buy commodities and services.

The main problem with these receipts were that in case the goldsmith gave more receipts than the value of gold that he had, will make them vulnerable “runs” or “panics”. For example, consider that the goldsmith gave away receipts equaling twice the value of gold he has in his reserves, and if all the people having these receipts come to him asking for gold for their receipts; then it will be impossible for him to meet the demand.

Economics Concept Introduction

Concept introduction:

Receipt: It is a written acknowledgment that something of value has been transferred from one party to another.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 35, Problem 1DQ

To determine

Gold receipts and loans from the goldsmiths.

Expert Solution & Answer

Explanation of Solution

During the ancient times traders started to use gold for transactions. But in certain circumstances, it was realized that it was unsafe and inconvenient to carry gold for weighing and to scrutinize its purity for each transactions. So, during the sixteenth century, the goldsmiths came into the picture and people started to deposit their gold at the goldsmiths. These goldsmiths will store their gold in the vaults for a particular fee. Once they receive the gold, the goldsmith will issue a receipt to the respective person for depositing the gold. These receipts went on to become the first type of paper money, as people very soon started to pay for commodities using these receipts from the goldsmith. Merchants willingly accepted these receipts, as they knew that they can exchange these receipts for gold or reuse them to buy commodities and services.

The main problem with these receipts were that in case the goldsmith gave more receipts than the value of gold that he had, will make them vulnerable “runs” or “panics”. For example, consider that the goldsmith gave away receipts equaling twice the value of gold he has in his reserves, and if all the people having these receipts come to him asking for gold for their receipts; then it will be impossible for him to meet the demand.

Economics Concept Introduction

Concept introduction:

Receipt: It is a written acknowledgment that something of value has been transferred from one party to another.

Answer 6

Chapter 35, Problem 1DQ

To determine

Gold receipts and loans from the goldsmiths.

Expert Solution & Answer

Explanation of Solution

During the ancient times traders started to use gold for transactions. But in certain circumstances, it was realized that it was unsafe and inconvenient to carry gold for weighing and to scrutinize its purity for each transactions. So, during the sixteenth century, the goldsmiths came into the picture and people started to deposit their gold at the goldsmiths. These goldsmiths will store their gold in the vaults for a particular fee. Once they receive the gold, the goldsmith will issue a receipt to the respective person for depositing the gold. These receipts went on to become the first type of paper money, as people very soon started to pay for commodities using these receipts from the goldsmith. Merchants willingly accepted these receipts, as they knew that they can exchange these receipts for gold or reuse them to buy commodities and services.

The main problem with these receipts were that in case the goldsmith gave more receipts than the value of gold that he had, will make them vulnerable “runs” or “panics”. For example, consider that the goldsmith gave away receipts equaling twice the value of gold he has in his reserves, and if all the people having these receipts come to him asking for gold for their receipts; then it will be impossible for him to meet the demand.

Economics Concept Introduction

Concept introduction:

Receipt: It is a written acknowledgment that something of value has been transferred from one party to another.

Answer 7

Chapter 35, Problem 1DQ

To determine

Gold receipts and loans from the goldsmiths.

Answer 8

Expert Solution & Answer

Explanation of Solution

During the ancient times traders started to use gold for transactions. But in certain circumstances, it was realized that it was unsafe and inconvenient to carry gold for weighing and to scrutinize its purity for each transactions. So, during the sixteenth century, the goldsmiths came into the picture and people started to deposit their gold at the goldsmiths. These goldsmiths will store their gold in the vaults for a particular fee. Once they receive the gold, the goldsmith will issue a receipt to the respective person for depositing the gold. These receipts went on to become the first type of paper money, as people very soon started to pay for commodities using these receipts from the goldsmith. Merchants willingly accepted these receipts, as they knew that they can exchange these receipts for gold or reuse them to buy commodities and services.

The main problem with these receipts were that in case the goldsmith gave more receipts than the value of gold that he had, will make them vulnerable “runs” or “panics”. For example, consider that the goldsmith gave away receipts equaling twice the value of gold he has in his reserves, and if all the people having these receipts come to him asking for gold for their receipts; then it will be impossible for him to meet the demand.