Under a gold standard, as trade takes place and the foreign exchange market is affected, ______ tend(s) to restore equilibrium.
A) a change in the interest rate
B) gold flows between nations
C) currency flows
D) changes in the value of gold

Question

Quizplus · Accepted Answer

Under the gold standard, trade imbalances and currency fluctuations would lead to gold flows between nations. If a country ran a trade surplus, it would receive gold from other countries in exchange for its currency. If a country ran a trade deficit, it would lose gold to other countries as its currency was sold and exchanged for gold. This constant movement of gold would help to restore equilibrium in the foreign exchange market. Changes in interest rates or the value of gold could also have an impact on the system, but they would not be the primary mechanism for restoring equilibrium under the gold standard.

Under a Gold Standard, as Trade Takes Place and the Foreign