Open Economy Macroeconomics with Fixed Exchange Rates

Open Economy Macroeconomics with Fixed Exchange Rates -...

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Open Economy Macroeconomics with Fixed Exchange Rates From Last Time What was Nixon's explanation for our gold shortage? By the 1960's, the U.S. had begun to run large balance of payments deficits. More and more dollars ended up in the hands of foreign central banks. With so many dollars out there, foreign central banks became concerned about whether the dollar was really worth $35 = 1 ounce of gold. So, they began to redeem their dollars. The U.S. gold supply shrunk. Nixon could have contracted the American economy to reduce imports. This would have reversed the gold flow. He could have devalued the dollar, say by changing the price to $50 = 1 ounce of gold. He could have imposed restrictions on international transactions. The easiest thing to do, however, was just to break the link between gold and the dollar. PPP is not good in the short run but how does it do in the long run? Studies have found that it takes at least 5 years for PPP to reestablish itself after a disturbance to the exchange rate. Does/Should PPP work across states in the U.S.?
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Open Economy Macroeconomics with Fixed Exchange Rates -...

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