MGCR 382 Lecture Notes - Lecture 21: United States House Committee On Oversight And Government Reform, Speculative Attack, Trilemma

• School: McGill University
• Department: Management Core
• Course: MGCR 382
• Professor: Jan J Jorgensen, David S.Schumacher

Document Summary

Under a gold standard, currencies are valued in terms of the gold equivalent. 1 ounce of gold = 20 cad, 1 ounce of gold = 10 gbp. Since all are valued in terms of gold, exchange rates are fixed. The standard requires a commitment to convert currency into gold at the specified conversion rate. I. e. countries need to hold gold reserves. Costly production means that its supply is relatively fixed in the short run. Money supply grows with the production of gold. Rigidity enforces a certain level of price stability. Limits money creation and therefore limits potential inflation risk mechanically. Can excessively constrain the tools of monetary policy. E. g. if the economy grows, the central bank cannot increase money supply without extra gold. Ties the price level to the production of gold. I. e. a new discovery of gold can lead to price jumps. Global economic power linked to gold production in the country. Money needed at home to finance war.