Desirable properties b in short run high production

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A. Desirable properties B. In short run: High production costs limit short- run changes. C. In long run: Commodity money insures stability. 9
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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY SYSTEM II.The Classical Gold Standard (1821-1914) A. Major currencies on gold standard. 1. Involved commitment by nations to fix the price of domestic currency in terms of a specific amount of gold. 10
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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY SYSTEM 2. Maintenance involved the buying and selling of gold at that price. 3. Disturbances in Price Levels: Would be offset by the price- specie*-flow mechanism. * specie refers to gold coins 11
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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY SYSTEM a. Price-specie-flow mechanism had automatic adjustments: 1.) When a balance of payments surplus led to a gold inflow; 2.) Gold inflow led to higher prices which reduced surplus; 3.) Gold outflow led to lower prices and increased surplus. 12
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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY SYSTEM III. The Gold Exchange Standard (1925-1931) A. Only U.S. and Britain allowed to hold gold reserves. B. Others could hold both gold, dollars or pound reserves. 13
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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY SYSTEM C. Currencies devalued in 1931 - led to trade wars. D. Bretton Woods Conference - called in order to avoid future protectionist and destructive economic policies 14
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A BRIEF HISTORY OF THE INTERNATIONAL MONETARY SYSTEM IV. The Bretton Woods System (1946-71) A. The Bretton Woods Agreement 1. U.S.$ was key currency; valued at $1 = 1/35 oz. of gold.
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