Introductory Macroeconomics

Book: Introductory Macroeconomics

Chapter: 6. Open Economy Macroeconomics

Subject: Social Science - Class 12th

Q. No. 5 of Exercises

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Explain the automatic mechanism by which BOP equilibrium was achieved under the gold standard.

Under Gold Standard System gold was taken as a common unit to measure the currencies of other countries, which means the value of every currency was defined in terms of gold.

The exchange rate in open market was determined by it's worth in terms of the value of gold. However the upper and lower limits were fixed within which it fluctuated.

Under Gold Standard System the exchange rates became stable and all countries maintained a proper stock of gold so as to exchange currency.


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