Consider two countries, Mondrain and Davenport that are on the gold standard exchange
Rate system.The exchange rate implied by the gold standard is 5 divas (Davenport's
Currency)
Per mond (Mondrain's currency)
.Suppose at this exchange rate, the quantity supplied of monds exceeds the quantity demanded.Which of the following is true?

Question

Quizplus · Accepted Answer

CWhen the quantity supplied of Mondrain's currency (monds) exceeds the quantity demanded at the given exchange rate, it implies that there is more currency available for foreign exchange than there is demand for it. This situation typically occurs when spending flowing out of Mondrain (e.g., on imports or investments abroad) exceeds spending flowing into Mondrain (e.g., from exports or foreign investment in Mondrain), which is captured in choice A. Additionally, this scenario suggests that Mondrain's exports to Davenport are less than its imports from Davenport, leading to an excess supply of monds. However, since the statement directly contradicts this logic by stating the quantity supplied of monds exceeds the quantity demanded (implying more spending out of Mondrain), choice C, which states Mondrain's exports exceeded its imports, is incorrect based on the given scenario. The correct interpretation aligns with the implications of an excess supply of Mondrain's currency due to higher spending outflows, making choice A the accurate description of the economic situation.

Consider Two Countries, Mondrain and Davenport That Are on the Gold