Under the classical gold standard,adjustments in domestic prices and short-term interest rates automatically promoted balance-of-payments equilibrium over the long run.

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Under the classical gold standard, adjustments in domestic prices and short-term interest rates automatically promoted balance-of-payments equilibrium over the long run. This was achieved through the mechanism of gold flows, where trade imbalances would result in gold leaving or entering a country, leading to changes in the money supply, prices, and interest rates that would eventually bring equilibrium.

Under the Classical Gold Standard,adjustments in Domestic Prices and Short-Term