A recession in the United States leads to a reduction in imports from Germany in the balance-of-payments. million marks the demand for German marks and leading to a Under the gold standard, the fixed exchange rate is maintained in the face of the balance-of-payments imbalance shown on the preceding graph because gold must flow from to
A recession in the United States leads to a reduction in imports from Germany in the balance-of-payments. million marks the demand for German marks and leading to a Under the gold standard, the fixed exchange rate is maintained in the face of the balance-of-payments imbalance shown on the preceding graph because gold must flow from to
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Transcribed Image Text:2.4
Supply of Marks
X
Demand for Marks
6
8
10
QUANTITY OF MARKS (Millions)
PRICE OF A MARK (In Dollars)
2.1
1.8
1.5
1.2
0.9
0.6
0.3
0
2
4
12
14
16
Demand for Marks
to
Supply of Marks
The Imbalance
A recession in the United States leads to a reduction in imports from Germany
million marks
in the balance-of-payments.
?
the demand for German marks and leading to a
Under the gold standard, the fixed exchange rate is maintained in the face of the balance-of-payments imbalance shown on the preceding graph
because gold must flow from
Transcribed Image Text:7. Gold standard
Between 1879 and 1934, the world's major nations adhered to the gold standard. Under the gold standard, a country maintained a fixed relationship
between its stock of gold and its money supply. Suppose that Germany defined a German mark as 120 grains of gold, and the United States defined
$1 as 100 grains of gold.
Under the gold standard, a German mark would have been worth U.S. dollars.
Suppose the fixed exchange rate is $1.20 per mark. Suppose that a recession in the United States leads to a reduction in imports from Germany.
On the following graph, shift the relevant curve or curves to illustrate the described changes. Then use the black points (plus symbol) to indicate the
imbalance.
Expert Solution
Step 1: Define balance of payments
The balance of payments (BoP) is a comprehensive accounting system that records all economic transactions between residents of one country and the rest of the world over a specified period, typically a year or a quarter.
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