The gold standard implies:

Question

Quizplus · Accepted Answer

The correct answer is: d. all of the above
Here's why:
a. The trade deficit or surplus affects the money supply under the gold standard because if a country had a trade deficit, it would pay for its purchases by shipping gold to the country from which it bought goods, thereby reducing its money supply. Conversely, a trade surplus would result in gold inflows, increasing the money supply.
b. The gold standard is often associated with long-run price stability because the supply of gold is relatively fixed, especially in the short term, and it takes a lot of time and resources to mine new gold. This means that the money supply is also relatively stable, which can lead to stable prices over the long run.
c. In the short run, however, the gold standard can lead to price instability. This is because the gold standard can transmit economic shocks from one country to another. For example, if one country experiences a boom and inflates its money supply, it can buy more foreign goods, leading to an outflow of gold from other countries, which would have to contract their money supplies in response, potentially leading to deflation.
Therefore, the gold standard has implications for both the money supply in relation to trade balances and for price stability in the short and long run.

The Gold Standard Implies