2a) When there is appreciation of the home currency i.e for example if 1 $ = 60 Rs before now 1 $ = 65 Rs so there is appreciation of Rs. In this case i need more home currency than before to buy one $ so imports increases and exports demand because to buy Indian goods now USA has to may more so exports to USA also decreases. Therefore there is generally deficit in balance of payments. This is how generally economy works in case of appreciation. But in case of price specie flow mechanism by David Hume any disturbance in the economy can be partially or wholly be overcomed by inflow or outflow of gold. Here home currency is appreciated so there must have been inflow of gold inside the home country and surplus in balance of payments , to bring it to equilibrium there must be outflow of gold.

2b) Now if the home central bank wants to follow this mechanism then in order to rectify the inflow of gold there should be outflow of gold from home country to foreign country until there is equilibrium in the Balance of payments. When there is outflow of gold there is decrease in the nominal money supply and the appreciation in the home currency is corrected.