Understanding the Gold Standard and Trade Balances

What does gold par value refer to in terms of the gold standard?

The amount of currency needed to purchase one ounce of gold.

What condition exists when the income residents earn from exports equals the money paid for imports?

Balance-of-trade equilibrium.

What happens to the money supply in a nation when another nation experiences a trade surplus under the gold standard?

Gold flows reduce the money supply in the nation with a trade deficit.

What effect does a reduction in the money supply have on prices in a nation?

Prices fall, creating more demand for products from that nation.

What occurs if a European nation with a fixed exchange rate increases its money supply by printing more currency?

The prices of imports would become more attractive in the country.

What is the relationship between trade surplus and money supply under the gold standard?

A nation with a trade surplus experiences a swell in the money supply.

What is the likely outcome of a nation experiencing a reduction in money supply?

It leads to lower prices, which increases demand for its products.

What is a balance-of-payments deficit?

A situation where a country spends more on foreign trade than it earns.

What is a currency crisis?

A situation where a country's currency rapidly devalues, leading to economic instability.

What is a balance-of-trade surplus?

When a country's income from exports exceeds its spending on imports.

What is the tragedy of the commons?

A situation where individuals acting in their own self-interest deplete shared resources.

What is a floating exchange rate?

An exchange rate that is determined by the market forces of supply and demand.

What is a planned economy?

An economic system where the government makes all decisions about the production and distribution of goods.

What happens to a nation's goods if its money supply increases significantly?

The country's goods may become less competitive in world markets.

What is the effect of price deflation on a country's economy?

It can lead to reduced consumer spending and economic stagnation.

What is the impact of ******* currencies to something other than gold?

It may lead to instability in currency values if not managed properly.

What does it mean for a currency to be pegged?

It is fixed to another currency or a commodity, like gold, to stabilize its value.

What does the term 'facilitating payment' refer to?

The process of making transactions easier through various payment methods.

What is the significance of the gold standard in international trade?

It provides a stable basis for currency exchange and trade between nations.

What is the role of gold reserves in a nation's economy?

They are used to back the currency and maintain confidence in its value.

What can lead to a currency crisis in a nation?

Rapid inflation, loss of investor confidence, or excessive debt.

What is a fiscal deficit?

When a government's expenditures exceed its revenues.