Advantages Of The Gold Standard Essay example
The fictional country of Comparativo Advantasia can produce seven pounds of food or four yards of textiles per unit of input. (a) Compute the opportunity cost of producing food instead of textiles.
To compute 7lbs food vs. 4yds textile
Now if you divide both sides of the equation by 7
This will result with 1lb food = 0.5714yds textile
Meaning that the Opportunity Cost of 1lb food is 0.5714yds textile
(b) Similarly, compute the opportunity cost of producing textiles instead of food
To compute 4yds textile vs. 7lbs food
If we reverse the equation above and instead now divide both sides of the equation by 4
The result is 1yd textile = 1.75lbs food
Based on these calculations, the opportunity cost of 1yd textile = 1.75lbs food
Describe the advantages and disadvantages of the gold standard.
One advantage of the gold standard is that it not only promoted international transactions, investments, and trade; but it also secured these international transactions by backing them; therefore reducing uncertainty. Another advantage is that it influenced a more long term and stable level of exchange rate. More importantly, the gold standard also limits a governments’ ability to print money at will.)
One major disadvantage of the gold standard is that there is a fluctuating rate in the cost and ability to manufacture gold: not to mention an unbalanced supply. Countries that have a larger ability to supply and reserve, will have an unfair advantage. And as a…