Between 1879 and 1934, the world\'s major nations adhered to the gold standard.
ID: 1218406 • Letter: B
Question
Between 1879 and 1934, the world's major nations adhered to the gold standard. Under the gold standard, a country maintained a fixed relationship between its stock of gold and its money supply. Suppose that France defined a French franc as 120 grains of gold, and the United States defined dollar 1 as 100 grains of gold. Under the gold standard, a French franc would have Peen worth U.S. dollars. Suppose the fixed exchange rate is dollar 1.20 per franc. Suppose that an Increase in the price level In the United States leads to an Increase in imports from France. On the following graph, shift the relevant curve or curves to illustrate the described changes. Then use the black points (cross symbol) to indicate the imbalance. An increase in the price level In the United States leads to an increase in Imports from France. the demand for French francs and leading to a million In the balance-of-payments. Under the gold standard, how is the fixed exchange rate maintained in the face of the balance-of-payments imbalance shown on the previous graph? Gold must flow from France to the United States. The IMF must lend francs to the United States with which to buy dollars. The IMF must lend dollars to France with which to buy francs. Gold must flow from the United States to France.Explanation / Answer
1.2 USD
Increse in demand for french francs
Deficit
Gold must flow from the united states to france. As US is the country that imported goods so they pay in gold.
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