Assume that a natural disaster destroys half of a country’s gold stock. Use the formal gold...

Assume that a natural disaster destroys half of a country’s gold stock. Use the formal gold standard model from lectures to trace through the short and long-term impacts on key economic variables of this shock. Make sure to clearly label diagrams and describe the full price-specie flow mechanism.

Expert Solution

As per the given question, if the natural disaster occurs and destroyed country’s half of the gold stock then it impacts will show on an economy of the country. The immediate impact will show on gold and the crawling price reaches the tip of the mountain. Because the gold scarcity will lead to huge demand in the market and the supplier use this opportunity to offer for maximum amount for buyers.

In long-term impact, the gold price will not decrease at least 5 years long period. Because the scarcity will continue the same flow and it may come to a stable moment after 5 or more than 5 years. In the meanwhile of a period, the scarcity will hitch the economic growth of the country in the home and the negative impact of shadow also show on an international market.

Let us assume the values of both short- and long-term impact and represent in table and diagram.

After observing both tables and diagram of assumed values, we came to know the short-term impact and long-term impact effect on countries economy.

Rahul Sunny answered 2 years ago

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