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1_______. That is they represented a specific amount of gold in storage. In time, however, the goldsmiths noticed that on most days the gold that people withdrew was less than the amount they deposited. 2_______. In many instances, the borrowers, too, were content simply to take paper receipts rather than the actual metal. This was the beginning of what we now call fractional reserve banking. 3_______. Since goldsmiths’ receipts were a form of paper money, goldsmiths’ loans had the effect of increasing the money supply. Much the same is true today when banks make loans. 4_______. After setting aside a fraction of these deposits in the form of reserves, they create money by lending the remainder but instead of goldsmith receipts, modern banks expand the money supply through the use of checking accounts.