Category: Gold Standard

Summary A look at an advantage of the Gold Standard system. We examine how a commitment to the Gold Standard meant that governments could not print/spend money indiscriminately. Because people holding a currency could redeem gold for their currency at any time, any loss in confidence in a currency would cause gold reserves held by a central bank to become quickly depleted and undermine the currency they were attempting to print/spend. Videos to watch before What can cause the banking system to break down? What restrictions did the Gold Standard impose on member countries?

Summary This video talks about a disadvantage of the Gold Standard. Specifically we discuss how a country with high unemployment often found itself with some unpleasant options to choose from when trying to stimulate job creation. The most common way to decrease unemployment was to first decrease wages in an economy such that exports were made cheaper, creating more demand for goods and leading to an inflow of gold, which ultimately lead to an increase in employment. This first step of decreasing wages was often extremely difficult for governments to do. Videos to watch before What restrictions did the Gold Standard impose on member countries?

Summary An examination of how the Gold Standard kept price levels in check. An increased/decreased price level in one country was countered by a flow of gold out of/into the country through the trade imbalance mechanism. This offsetting flow of gold would neutralize the change in the price level. Videos to watch before What restrictions did the Gold Standard impose on member countries? Does an increasing money supply always cause inflation?

Summary We look at a simple example that shows how the Gold Standard and therefore by definition, fixed exchange rates, made trading between countries more convenient by eliminating any risk of exchange rate changes. Videos to watch before What restrictions did the Gold Standard impose on member countries?

Summary This video talks about a disadvantage of the Gold Standard. Specifically we discuss how economic shocks in one country can be transmitted quickly across the world because of the fixed exchange rate mechanism that is synonymous with the gold standard. We look at what is likely to happen if there was a terrorist attack in one country on the Gold Standard, and see that its entirely possible that a country would have to increase interest rates in reaction to such an event. Videos to watch before What restrictions did the Gold Standard impose on member countries?

Summary This video discusses why being on the Gold Standard implied that a country had a fixed currency exchange rate with another country on the Gold Standard. We also discuss how the fixed exchange rate meant that interest rates between two countries had to be similar to prevent a flow of gold from one country to the other. This made it difficult for a country to have an independent monetary policy. Videos to watch before Why are interest rates so important for an economy?