5. Gold standard Between 1879 and 1914, the world's major nations adhered to the gold standard. Under the gold standard, a country maintained a fixed relationship between its stock of gold and its money supply. Suppose that Great Britain defined a British pound as 120 grains of gold, and the United States defined $1 as 100 grains of gold. Under the gold standard, a British pound would have been worth $1.20 U.S. dollars. Suppose the fixed exchange rate is $1.20 per pound. Suppose that an economic expansion in the United States leads to an increase in imports from Great Britain. On the following graph, shift the relevant curve or curves to illustrate the described changes. Then use the black points (cross symbol) to indicate the imbalance. Supply for pounds Demand for pounds Supply for pounds PRICE OF A POUND (In Dollars) + The Imbalance Demand for pounds 16 4 QUANTITY OF POUNDS (Millions) An economic expansion in the United States leads to an increase in imports from Great Britain. As a result, the demand for British pounds causing a million imbalance in the U.S. balance of payments. d standard, how is the fixed exchange rate maintained in the face of the balance-of-payments imbalance shown on the previous graph? increases d must flow from Great Britain to the United States. An economic expansion in the United States leads to an increase in imports from Great Britain. As a result, the demand for British pounds causing a million imbalance in the U.S. balance of payments. Under the gold standard, how is the fixed exchange rate maintained in the face of the balance-of-payments imbalance shown on the previous graph? O Gold must flow from Great Britain to the United States. O The IMF must lend dollars to Great Britain with which to buy pounds. o The IMF must lend pounds to the United States with which to buy dollars. O Gold must flow from the United States to Great Britain. 5. Gold standard Between 1879 and 1914, the world's major nations adhered to the gold standard. Under the gold standard, a country maintained a fixed relationship between its stock of gold and its money supply. Suppose that Great Britain defined a British pound as 120 grains of gold, and the United States defined $1 as 100 grains of gold. Under the gold standard, a British pound would have been worth $1.20 U.S. dollars. Suppose the fixed exchange rate is $1.20 per pound. Suppose that an economic expansion in the United States leads to an increase in imports from Great Britain. On the following graph, shift the relevant curve or curves to illustrate the described changes. Then use the black points (cross symbol) to indicate the imbalance. Supply for pounds Demand for pounds Supply for pounds PRICE OF A POUND (In Dollars) + The Imbalance Demand for pounds 16 4 QUANTITY OF POUNDS (Millions) An economic expansion in the United States leads to an increase in imports from Great Britain. As a result, the demand for British pounds causing a million imbalance in the U.S. balance of payments. d standard, how is the fixed exchange rate maintained in the face of the balance-of-payments imbalance shown on the previous graph? increases d must flow from Great Britain to the United States. An economic expansion in the United States leads to an increase in imports from Great Britain. As a result, the demand for British pounds causing a million imbalance in the U.S. balance of payments. Under the gold standard, how is the fixed exchange rate maintained in the face of the balance-of-payments imbalance shown on the previous graph? O Gold must flow from Great Britain to the United States. O The IMF must lend dollars to Great Britain with which to buy pounds. o The IMF must lend pounds to the United States with which to buy dollars. O Gold must flow from the United States to Great Britain