Essentially, Macroeconomics is the study of the economy as a whole; athriving economy will create money and produce goods and services for consumption. Moreover, economic systems are influenced by several macroeconomic factors. Furthermore, a country will strive for sustainable economic growth to improve the standard of living for its citizens. Even though, fiscal and monetary policy is used to influence the economy; a well define monetary policy has the ability to control and produce sustainable growth.
Primarily, the United States like many other countries has a fractional reserve banking system in which only a fraction of the total money supply is held in reserve as currency. However, early traders began to use gold in making transactions; they soon realized that it was both unsafe and inconvenient not only to carry gold but also to have it weighed every time they negotiated a transaction. By the late sixteenth century, they had begun to deposit their gold with goldsmiths who would store it in vaults for a fee.
On receiving a gold deposit, the goldsmith would issue a receipt to the depositor. Soon people were paying for goods with goldsmiths' receipts which served as the first paper money (Wikipedia, 2007).
Before long, the goldsmiths observe that the amount of gold being deposited with them in any week or month was likely to exceed the amount that was being withdrawn. Someone came up with the idea that paper receipts could be issued in excess of the amount of gold being held. Consequently, goldsmiths would put these receipts, which were redeemable in gold, into circulation by making interest-earning loans to merchants, producers, and consumers. All in all, borrowers were willing to accept loans in the form of gold receipts because the receipts were accepted as a medium of exchange in the marketplace. Therefore, this...