Macroeconomic Impact on Business OperationsMany have heard the phrase "Money makes the world go round," but where does money come from? The United States, like most other countries today, has a fractional reserve banking system in which only a fraction of the total money supply is held in reserve as currency. Early traders began using gold to make transactions; they soon realized that it was dangerous and inconvenient to transport gold and have it weighed every time they negotiated a transaction. Towards the end of the 16th century they had begun to deposit their gold with goldsmiths, who kept it in safes for a fee. After receiving a deposit of gold, the goldsmith issued a receipt to the depositor. Soon people began paying for goods with goldsmiths' receipts, which served as the first type of paper money. After receiving a deposit of gold, the goldsmith issued a receipt to the depositor. Soon people began paying for goods with goldsmiths' receipts, which served as the first type of paper money. The goldsmiths observed that the amount of gold deposited with them in a week or a month was probably greater than the amount that was withdrawn. Someone had the idea that paper receipts could be issued in excess of the amount of gold held. Goldsmiths would put these receipts, which were convertible into gold, into circulation, making interest-bearing loans to merchants, producers and consumers. Borrowers were willing to accept loans in the form of gold receipts because receipts were accepted as a medium of exchange in the market. This was the beginning of fractional reserve banking, in which reserves in bank vaults represent a fraction of the total money supply. Fractional reserve banking has two significant characteristics: money creation and reserve, defined as banks can create money through lending, and banking panic and regulation: Banks operating on the basis of fractional reserves are vulnerable to “panic ” or “escape” (McConnell & Brue 2005). Money creation is the process by which a country's money supply increases. There are several ways in which a government, in coordination with a country's commercial banks, can increase or decrease a country's money supply. If a country follows a fractional reserve banking regime, as virtually all countries do, not all money in circulation needs to be backed by other currencies, physical assets such as gold, or public goods..