Under the gold standard,a surplus nation facing a gold inflow and an increase in its money supply would also experience a:
A) Rise in its interest rate and a short-term financial inflow
B) Rise in its interest rate and a short-term financial outflow
C) Fall in its interest rate and a short-term financial inflow
D) Fall in its interest rate and a short-term financial outflow

Question

Quizplus · Accepted Answer

Under the gold standard, a surplus nation facing a gold inflow and an increase in its money supply would lead to a fall in its interest rate as a result of an increase in the supply of loanable funds. This would make it more attractive for borrowers to invest in the economy, leading to a short-term financial outflow as the surplus nation's investors seek higher returns elsewhere.

Under the Gold Standard,a Surplus Nation Facing a Gold Inflow