Practice Quiz 5 Answers

The price of the shirt in terms of gold would be

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Unformatted text preview: the shirt in terms of gold would be lower in the US and we would expect an outflow of gold from the UK take it in two parts - first determine the prices in terms of gold: it takes 1/2 oz of gold to but the shirt in the UK and 8/10 an oz of gold in the US- so it is cheaper in the UK - people will buy it there - and the gold will flow out of US to the UK price of ounce of gold UK US 10 $30 price of shirt in terms of currency before war 5 $20 price of shirt in terms of currency after war 10 $20 9. After WWI England (UK) needed to make a decision regarding a return to the gold standard, and if they did return, they needed to set the price of the pound () in terms of gold. The basics of the problem can be seen in the table above. One of the problems was England had very high inflation rates during WW I that increased the price of goods produced in England. If England went back on the gold standard at the pre war price of pounds, then what could we predict in England if wages and prices were completely flexible as specified in the Classical model? a. there would be...
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This document was uploaded on 03/01/2014 for the course ECN 202 at Rhode Island.

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