Question

In the gold-standard economy, what is the net effect of the increase in the price of gold and the change in real GDP on net exports, and why?

Answer 1

In the gold standard economy, the financial markets of the participating countries were highly related. Under the assumption of the fixed exchange rate and perfect capital mobility, real shocks in the economy had the large impact on the domestic economy and both international business cycles and integrated economies were affected. A country which exports gold or has gold reserves will see an increase in the strength of its currency when gold prices rise and thus its total exports would rise and trade surplus or offset a trade deficit.