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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Explain how a gold standard, as monetary policy, would work.

To determine

The use of gold standard as a monetary policy.

Explanation

The market price of gold is the price determined in the gold market. The official price of gold is the rate at which the monetary authority is willing to buy and sell gold. When the official price of gold is higher than the market price of gold, then people buy gold from the monetary authority and sell it in the gold market. This leads to an increase in the supply of gold and the price of gold reduces gradually until the official price is equal to the market price. Since people use the money to buy gold from the monetary authority, money supply in the economy reduces...

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