Imagine a Crude Banking System Based on a Reserve of 100

question 3

Multiple Choice

Imagine a crude banking system based on a reserve of 100 gold coins,with circulating paper deposit claims on 500 gold coins.This situation is sustainable if,among other things,merchants ________ accept paper claims on gold as payment for their goods,and gold coins withdrawn from the banking system are ________ the system.

• A)will,returned to
• B)will,kept out of
• C)will not,returned to
• D)will not,kept out of

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Definitions:

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded by consumers.

Market Price

The current price at which an asset or service can be bought or sold in a competitive marketplace.

Consumer Surplus

The difference between the total amount consumers are willing and able to pay for a good or service versus the total amount they actually pay.

Producer Surplus

The difference between what producers are willing to accept for a good versus what they actually receive.