Under the Gold Standard, When a Nation Had a Deficit

question 2

Multiple Choice

Under the gold standard, when a nation had a deficit in its balance of payments

• A) interest rates would rise which would reduce foreign investment.
• B) interest rates would fall which would increase foreign investment.
• C) gold would flow to foreign residents and the domestic money supply would decrease.
• D) gold would flow into the country leading to an increase in the domestic money supply.

---

Definitions:

Autarky Price

The price of goods or services within a self-sufficient economy that does not engage in international trade.

Producer Surplus

The difference between what producers are willing to accept for a good or service versus what they actually receive, representing extra benefit to producers.

International Trade

The exchange of goods, services, and capital between countries and territories, often driven by comparative advantages and specialization.

Comparative Advantage

A principle in international trade that suggests a country or entity should produce and export goods and services for which it has a lower opportunity cost compared to other countries or entities.