A goldsmith holds 200 kg of gold deposited by villagers, against which paper receipts circulate as money. He lends 50 kg of gold; the borrower pays a trader, who deposits the 50 kg back with the goldsmith for a receipt. He then lends another 40 kg, which also comes back to him as a deposit. How much gold do the paper receipts now represent?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 290 kg
Given:
Gold deposited at the start = 200 kg
First loan, deposited back = 50 kg
Second loan, deposited back = 40 kg
Each loan comes back as a new deposit and gets a new receipt. The old receipts stay in use, so receipts grow by every loan.
Receipts in use = deposits at the start + gold redeposited from loans
= 200 + 50 + 40 = 290 kg
The goldsmith still holds only 200 kg of gold. Like Lala, he has created money in the form of receipts.
NCERT (2026-27): “Commercial Banks … Now, let us suppose that Lala had 100 Kgs of gold, deposited by different people and he had issued receipts corresponding to 100 kgs of gold. At this time Ramu comes to Lala and asks for a loan of 25 kgs of gold. … If Lala gives the loan of 25 kgs of gold, Ramu could also pay Ali with these 25 kgs of gold and Ali could keep the 25 kgs of gold with Lala in return for a paper receipt. In effect, the paper receipts, acting as money, would have risen to 125 kgs now. It seems that Lala has created money out of thin air! The modern banking system works precisely the way Lala behaves in this example.” |