Under the gold standard,international imbalances of payment will be corrected automatically under the

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The price-specie-flow mechanism corrects international imbalances of payment under the gold standard. The mechanism works as follows: if a country has a trade surplus, it will receive more gold and its money supply will increase. This will lead to higher prices and higher wages, making its exports more expensive and imports cheaper. Conversely, a country with a trade deficit will lose gold, leading to lower prices and wages, making its exports cheaper and imports more expensive. This adjustment mechanism ensures that imbalances in trade and payments are corrected over time.

Under the Gold Standard,international Imbalances of Payment Will Be Corrected