Exploring the Potential Drawbacks of the Gold Standard for the World Economy

One potential drawback of the gold standard is thatthe world economy can be subject to deflationary pressure due to the limited supply of monetary gold. all of the options gold is scarce. the world economy can be subject to inflationary pressure without changes in the supply of monetary gold.

the world economy can be subject to deflationary pressure due to the limited supply of monetary gold.

The option that correctly identifies a potential drawback of the gold standard is “the world economy can be subject to deflationary pressure due to the limited supply of monetary gold.”

The gold standard is a monetary system in which a country’s currency is backed by a fixed amount of gold held in reserves by the central bank. The value of the currency is directly linked to the price of gold, and the supply of money is limited by the amount of gold a country has in reserve. This means that there is a finite amount of money that can be in circulation, and it may not be able to keep pace with the growth of the economy.

Due to the limited supply of monetary gold, an increase in the demand for goods and services can result in a decrease in the supply of money, which can lead to deflationary pressure. Deflation occurs when prices of goods and services decrease, leading to a decrease in consumer spending, lower profits for businesses, and potentially job losses, which can have a negative impact on the overall economy.

While the gold standard can help prevent inflation by limiting the supply of money, it can also create deflationary pressures that can be equally damaging to the economy. Therefore, it is important to find a balance between controlling inflation and preventing deflation to maintain a stable and healthy economy.

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