For countries on the gold standard,bilateral exchange rates equal
A) the ratio of the size of the country's gold stock to that of another country.
B) the reciprocal of the differences between each country's gold supplies.
C) the ratio of the amount of gold in a unit of each country's monetary unit.
D) a ratio that fluctuates according to the inflows and outflows of gold from one country to another.
E) the sizes of their gold stocks divided by the reciprocal of the absolute value of their trade deficit or surplus.

Question

Quizplus · Accepted Answer

Bilateral exchange rates for countries on the gold standard are determined by the amount of gold in a unit of each country's monetary unit. As per the gold standard, the exchange rate between two countries is determined by the relative weights of gold in their respective currencies. For example, if one nation's currency was backed by a greater weight of gold than another nation's currency, then one unit of the first currency would exchange for more than one unit of the second currency. Hence, the correct choice is (C) the ratio of the amount of gold in a unit of each country's monetary unit.

For Countries on the Gold Standard,bilateral Exchange Rates Equal