The Classical Gold Standard: Practice Questions and Solutions

Intermediate Macroeconomics Problems and Solutions - Section 2

See Mr. Stolyarov's complete index of Intermediate Macroeconomics Problems and Solutions here.

Problem 6. Which of these is one of the rules entailed in the classical gold standard?

(a) Nationalize the gold mines and extract gold at a fixed rate.
(b) Set a target rate for growing the money supply. If GDP grows at 3% per year, the central bank should grow the money supply at 3% per year.
(c) Fix an official gold price or "mint parity," and convert freely between domestic money and gold at that price.
(d) Require banks to hold 100% gold reserves.
(e) Prohibit all lending from the central bank to domestic banks.

Solution 6. The correct answer is (c): Fix an official gold price or "mint parity," and convert freely between domestic money and gold at that price.

Problem 7. Which of these is another of the rules entailed in the classical gold standard?

(a) Fix all wages and prices in terms of gold.
(b) Threaten to retaliate against any nations that deviate from the fixed exchange rate among national currencies.
(c) If it is impossible to convert between the national currency and gold as promised, slightly debase the coinage by adding a touch of silver to it.
(d) Allow the common price level (nominal anchor) to be endogenously determined by the worldwide demand for, and supply of, gold.
(e) Implement a free banking system, abolishing the central bank and removing all banking restrictions and regulations.

Solution 7. The correct answer is (d): Allow the common price level (nominal anchor) to be endogenously determined by the worldwide demand for, and supply of, gold.

Problem 8. Which of these is yet another of the rules entailed in the classical gold standard?