ADVANTAGES AND DISADVANTAGES OF GOLD STANDARD
The gold standard worked quite well during the Industrial Revolution of the 19th century and the First World War. Governments around the world worked together to trade the gold standard and there was a broad gold offer for the size of the world economy. However, the gold standard worked poorly during World War I and the Great Depression. Governments needed money for war efforts and social programs. That money was not available under the gold standard. The United States eventually abandoned the gold standard in 1933. The gold standard is the controversial practice of backing the currency of a country with the value of gold.
What is balance of payments? Explain its major components. Why is it useful to compute a country’s balance of payments?
The currency that is on the gold standard could be exchanged for an equal amount of gold at any time since the currency is essentially a promissory note for the precious metal. Defenders of the gold standard say that it gives real value to the currency instead of the imaginary value of the current currency. Detractors say that the gold standard is too rigid and restricts economic policy in times of financial instability.
ADVANTAGE OF GOLD STANDARD –
- One advantage of the gold standard is that it prevents inflation from