Under the gold standard, if a country had a deficit in its balance of payments, it would have to:

Question

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Under the gold standard, a country with a balance of payments deficit would sell gold to settle its international debts. This action would typically lead to a reduction in the money supply, which could increase interest rates and decrease the price level, making domestic goods more competitive abroad and thus helping to correct the deficit. Selling gold was a mechanism to prevent the currency from falling in value relative to gold and other currencies on the gold standard.

Under the Gold Standard, If a Country Had a Deficit