Flow lead countries to balance of payments equilibrium

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Reference no: EM131196701

This question deals discusses issues in three different areas of the international monetary system.

a. The GOLD STANDARD period was roughly 1870 to 1914. The gold standard has some strong automatic mechanisms that lead to 8 in a long run sense) simultaneous achievement of balance of payments equilibrium (official settlements balance=0) by all countries. Most notable in these automatic mechanism is David Hume’s PRICE-SPECIE FLOW MECHANISM, where specie refers to precious metals. Explain how this mechanism works, indicating how prices and specie flow lead countries to balance of payments equilibrium.

b. The BRETTON WOOD SYSTEM lasted from 1944 to early 1970s. state in one sentence how this system was structured differently from the gold standard system.

c. After collapse of the Brettoh Woods system, the FLOATING EXCHAGE RATE ERA(floating among major economies or economic bloc) has been in palce. Using a AA-DD diagram . explain the type of disturbance that would lead to more variation in national income when the excahnge is floating rather than fixe

Reference no: EM131196701

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