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a) Explain price-specie-flow mechanism b) Consider an economy with a Balance of Payments deficit under the Gold Standard regime. Now using the price-specie-flow mechanism, explain
a) Explain "price-specie-flow mechanism"
b) Consider an economy with a Balance of Payments deficit under the Gold Standard regime. Now using the price-specie-flow mechanism, explain why it is not very likely that this country will have a high inflation rate.
c) How does your answer to part b change if this country's central bank sterilizes the capital flows?
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