Scenario 18.1: Curly, Moe, Larry, and Shemp are the four inhabitants of a small island. Moe has 200 gold coins, the only money on the island. He takes the coins to Curly, a goldsmith, for storage and Curly issues Moe a receipt for the 200 coins he has deposited with Curly. Larry comes to Curly to borrow 100 gold coins, signing a legally binding promise to repay the coins, and Curly issues Larry a receipt saying that Larry now has 100 gold coins on deposit. Upon finding out that Larry borrowed gold coins from Curly, Shemp comes to Curly to borrow 200 gold coins. Since Curly has 200 actual gold coins on deposit, he gets Shemp to sign a legally binding promise to repay the 200 coins and then issues Shemp a receipt saying that Shemp now has 200 gold coins on deposit.
-Refer to Scenario 18.1. When Curly made the loans to Larry and Shemp, the money supply
A) did not change.
B) decreased by 300 coins.
C) increased by 300 coins.
D) increased by 500 coins.

Question

Quizplus · Accepted Answer

The money supply increased by 300 coins because Curly created receipts for Larry and Shemp that act as money, adding to the original 200 coins deposited by Moe, without physically increasing the number of gold coins.