Under a gold standard, a continual balance of surplus in anycountry can be susta

Question

Under a gold standard, a continual balance of surplus in anycountry can be sustained only as long as the country's goldreserves hold out. True or False

Explanation / Answer

False. Basically if a country has a surplus (Exports-Imports>0) then they would be earning gold from other countries (who have a deficit.) So their gold reserves should keep increasing. Now if for some strange reason their gold disappears and they have a surplus they would be still earning more gold. And furthermore, if their gold deficits get depleted, then the prices of goods would fall (ideally or theoretically), since their is less gold to go around and a lot of products in the economy. This will make other countries demand this country's products more and thus they would have trade surplus. hope that answers the question.

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