At gold-standard exchange rate OA, the United States would be ____ gold. And if

Question

At gold-standard exchange rate OA, the United States would be ____ gold. And if the United States left the gold standard and moved to flexible rates, so the exchange rate moved from OA to OB the United states would experience a _____ of the dollar.

a. gaining, appreciation

b. gaining depreciation

c. losing appreciation

d. losing, depreciation

2. Consider the following model of the market for foreign exchange. This time I am expressing the exchange rate as a ratio of dollars per yen (the Japanese currency) Consider a time long ago when both the United States and Japan were both on the gold standard. The official exchange rate was OA. (For example, if $1.00 could be exchanged for one ounce of gold and 20 yen could be exchanged for one ounce of gold, the exchange rate would be $1.00/20 yen = $.05/yen = OA). Dollar/Yen Japanese supply yen Americans demand yen Yen

Explanation / Answer

At the gold standard exchange rate OA, demand for yen is greater than its supply. Hence, US would be losing dollar. If united state moved to flexible rates, then supply of yen increases and demand experiences decline, thus dollar will appreciate. Hence right answer is (C)

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