In the modern world, central banks are free to increase or reduce the money supply as they see fit. However, some people harken back to the “good old days” of the gold standard. Under the gold standard, the money supply could expand only when the amount of available gold increased.

a. Under the gold standard, if the velocity of money was stable when the economy was expanding, what would have had to happen to keep prices stable?

b. Why would modern macro economists consider the gold standard a bad idea?