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 Consider the gold standard system


 Consider the gold standard system. Answer the questions in the cases below (They are different cases.)

2.a. Consider the situation that the price-specie-flow mechanism in Home was real-appreciating Home currency. In which was Home's balance of payments: Deficit, Surplus, or Equilibrium? Was the gold inflowing into Home country or outflowing to Foreign country?

Balance of Payments:

Inflow or Outflow?

2.b. Consider the situation that Home central bank decided to follow the rule of game because there was a strong incentive to follow it. In which was Home’s balance of payments: Deficit, Surplus, or Equilibrium? In the situation, how was the price-specie-flow mechanism changing nominal money supply: Decrease, Increase, or No change?

Balance of payments:

Nominal money supply:

Option 1

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Option 2

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