In a fixed gold system, a country has to hold a quantity of gold equivalent to...
In a fixed gold system, a country has to hold a quantity of gold equivalent to its circulation of money. The consumption of goods and services is really what wealth is and not a stockpile of potential purchases which is gold. With that said, do you think being on a gold standard is conducive to expanding an economy?
Homework Answers
No, its not.
Being on the gold standard restrict the monetary policy to a great extend and the Fed cannot expand the money supply in the market when the need be. for example, at the time of sub prime crisis the Fed expanded the money supply and lowered the interest rate to a great extend to stimulate the growth in the economy if it was gold standard this was not possible at all in the economy. Apart from that this will also affect the value of the currency and can lead to arbitrage in the currency market.
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