Discuss the advantages and disadvantages of gold standard, Financial Management

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Discuss the advantages and disadvantages of the gold standard.

Answer:  The benefits of the gold standard include: (I) as the supply of gold is restricted, countries cannot comprise high inflation; (2) any BOP disequilibrium can be corrected mechanically through cross-border flows of gold. Alternatively, the major disadvantages of the gold standard are: (I) the world economy can be subject to deflationary pressure because of restricted supply of gold; (ii) the gold standard itself has no method to enforce the rules of the game, and, the result of it, countries may pursue economic policies (such as de-monetization of gold) which are incompatible with the gold standard.


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