Question

What was the gold standard? How is monetary policy conducted under a gold standard? What are the virtues of a gold standard, according to Meltzer? What would be a shortcoming of a gold standard?

Answer 1

Gold standard was like defined as a monetary standard under which the basic unit of currency is equal in value to and exchangeable for a specified amount of gold.

Gold system is Monantory system . And under that system country paper Or currency value are directly linked to gold . With this standard countries aggreed to change it's paper money with fixed amount of gold . SO those who used gold standard in their country sets a fixed price for gold and proceed their buying And selling,of gold at that fixed price.

advantages of the gold standard.

Under gold standard people were can secure about the value of their money.

The government is limited in how much paper currency can be printed and the amountof currency printed will retain value.

gold standard is helpful in reduction in uncertainty as fixed pattern of exchange rates, limits the power of govts/banks to cause price inflation by excessive issue of paper currency

disadvantages of the gold standard.

A growing economy needs currency and a gold standard would limit the amount of money available.

People could convert their paper currency into gold and place a strain on the government's gold supply.

gold standard may not provide sufficient flexibility in the supply of gold as supply of newly mined gold is not closely related to the growing needs of the economy, compliance issues