RSM100Y1 Midterm: MIDTERM REVIEW Part 1(A)
Document Summary
Method of exchange, store of value, unit of account. Gold: portable, divisible, durable, stable in quantity (otherwise useless) Monarchs debase" the coinage: melt down existing coins, dilute with other metals and re-issue; with the extra for the monarch. More money supple will lead to a higher price. Wealthy individuals give their gold to money traders for protection. Then these money traders could lend the money to others for interests (money multiplier). Mercantilism: in 1500s-1700s, many nations tend to export more than they import, inflow of gold to purchase exports make these countries wealthy". David hume argues this did not work because of mv=pt. he called this insight specie-flow . Gold rushes" (california, south africa, and yukon) swelled m in random shocks, p became unstable, and gold standard" began to be doubted. Disruptions of wwi (1914-1918) and the great depression (1929-39) caused most countries to abandon gold as backing for domestic currency. (us abandons in 1933)
