8. A monetarist interpretation of the effect of leaving the gold standard would first note that gold should flow in the direction of a country that just devalued and thereby increase in the money supply. This increase in the money supply should cause an increase in nominal income. In a monetary system where each unit of currency must be backed by a certain amount of gold, what must be true about the relationship between the quantity and price of gold for a devaluation to increase the money supply? Do you observe increases in the money supply following a country leaving the gold standard?

9. Another mechanism through which leaving the gold standard affects the real economy is the Fisher debt-deflation theory we discussed in class. Explain how this mechanism works in general and what this theory would predict for the effects of leaving the gold standard. Use the data on wholesale price inflation to provide evidence for a necessary condition of this possible channel.

year country growth_WPI growth_IP GS_timing year_abandon M1 M1_Base Base_Reserves Reserves_Gold Gold_price Gold_quantity 1930 Australia 0 0 1930 1930 Belgium 1935 46420 2 2 2 24 287 30 Canada 1931 1930 France 1937 111720 1 1 17 3158 1930 Italy 1934 1930 Netherlands 1937 1930 New Zealand 1930 1930 Poland 1937 2212 2 2 95 1930 Spain 1930 1930 Sweden 1931 1030 97 1931 1361 HON 1930 UK NO H W N N 1081 1930 US 1933 24922 6479 1931 Australia 1930 1931 Belgium 1935 44863 1 24 533 1931 Canada 1931 1931 France 1937 122748 1 17 4059 1931 Italy 1934 1931 Netherlands 1937 " N N P P P D W A N W H W N N P A P A W A N W H W N N PA KAWANW 1931 New Zealand 1930 land 1937 1945 H 2 1 6 101 1931 Spain 1930 1931 Sweden 1931 1021 83 1931 UK 1931 1229 HON W N N 384 N 1931 US 1933 21894 6279 1932 Australia 1930 1932 Belgium 1935 41349 2 1 24 543 1932 Canada 1931 1932 France 1937 121519 17 4894 1932 Italy 1934 1932 Netherlands 1937 1932 New Zealand 1930 1932 Poland 1937 1773 2 1 6 85 1932 Spain 1930 1932 Sweden 1931 1004 83 1931 1362 HON 1932 UK 877 N 1932 US 1933 20341 6357