Which of the following is a great strength of the gold standard?
A)It helped establish the dollar as a predominant vehicle currency.
B)It helped governments raise foreign exchange reserves thereby increasing economic stability.
C)It contained a powerful mechanism for achieving balance-of-trade equilibrium by all countries.
D)It helped reduce inflation to near-zero levels in all countries engaged in international trade.
E)It helped to establish a common currency across the globe to fund international trade.

Question

Quizplus · Accepted Answer

The gold standard contained a mechanism where countries with a trade deficit would experience an outflow of gold, reducing the money supply and causing a decrease in prices, thereby increasing exports and reducing imports. On the other hand, countries with a trade surplus would experience an inflow of gold, which would increase the money supply, causing an increase in prices, which would then reduce exports and increase imports. This mechanism ensured that trade imbalances corrected themselves, leading to balance-of-trade equilibrium.

(Note: The other options are not accurate as the gold standard did not directly lead to these outcomes or did not apply universally across all countries engaged in international trade.)

Which of the Following Is a Great Strength of the Gold