Question 2, Short Answe: In several paragraphs , answer the prompt below, making

Question

Question 2, Short Answe: In several paragraphs , answer the prompt below, making sure to pay attention to key dates and events, and their significance for economic history (a good approach is to tie the dates, events and concepts to one of the factors of production, labor, capital, land, and technological innovation).

Describe the spread of so-called classic Gold Standard during the era before World War One. Describe two (2) ways that Central Banks helped maintain the Gold Standard before 1914? Offer two (2) reasons why the Standard operated less effectively between the two world wars. Be specific.

Explanation / Answer

A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold.

Three types may be distinguished: specie, exchange, and bullion. In the gold specie standard the monetary unit is associated with the value of circulating gold coins or the monetary unit has the value of a certain circulating gold coin, but other coins may be made of less valuable metal. The gold exchange standard usually does not involve the circulation of gold coins. The main feature of the gold exchange standard is that the government guarantees a fixed exchange rate to the currency of another country that uses a gold standard (specie or bullion), regardless of what type of notes or coins are used as a means of exchange. This creates a de facto gold standard, where the value of the means of exchange has a fixed external value in terms of gold that is independent of the inherent value of the means of exchange itself. Finally, the gold bullion standard is a system in which gold coins do not circulate, but the authorities agree to sell gold bullion on demand at a fixed price in exchange for currency.

As of 2013 no country uses a gold standard as the basis of its monetary system, although some hold substantial gold reserves.

A total of 174,100 tonnes of gold have been mined in human history, according to GFMS as of 2012. This is roughly equivalent to 5.6 billion troy ounces or, in terms of volume, about 9,261 cubic metres (327,000 cu ft), or a cube 21 metres (69 ft) on a side. World production for 2011 was at 2,700 tonnes. Since the 1950s, annual gold output growth has approximately kept pace with world population growth of around 2x,[1] although far less than world economic growth of some 8x,[2] or some 4x since 1980.[3]

Gold exchange standard:

Towards the end of the 19th century, some silver standard countries began to peg their silver coin units to the gold standards of the United Kingdom or the US. In 1898, British India pegged the silver rupee to the pound sterling at a fixed rate of 1s 4d, while in 1906, the Straits Settlements adopted a gold exchange standard against sterling, fixing the silver Straits dollar at 2s 4d.

Around the start of the 20th century, the Philippines pegged the silver peso/dollar to the U.S. dollar at 50 cents. This move was assisted by the passage of the Philippines Coinage Act by the United States Congress on March 3, 1903.[15] Around the same time Mexico and Japan pegged their currencies to the dollar. WhenSiam adopted a gold exchange standard in 1908, only China and Hong Kong remained on the silver standard.

When adopting the gold standard, many European nations changed the name of their currency from Daler (Sweden and Denmark) or Gulden (Austria-Hungary) to Crown, since the former names were traditionally associated with silver coins and the latter with gold coins.

Impact of World War I

Governments with insufficient tax revenue suspended convertibility repeatedly in the 19th century. The real test, however, came in the form of World War I, a test which "it failed utterly" according to economist Richard Lipsey.[4]

By the end of 1913, the classical gold standard was at its peak but World War I caused many countries to suspend or abandon it. According to Lawrence Officer the main cause of the gold standard

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