Author Question: How were exchange rates determined under the gold standard? How did the Bretton Woods system differ ... (Read 166 times)

wrbasek0 · **on:** Jun 29, 2018

How were exchange rates determined under the gold standard? How did the Bretton Woods system differ from the gold standard?

What will be an ideal response?

Question 2

Suppose you withdraw 1,000 from your savings account and put it under your mattress. Briefly explain how this will affect M1 and M2.

What will be an ideal response?

jxjsniuniu · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Under the gold standard, exchange rates were determined by the relative amounts of gold in each country's currency. Both the gold standard and Bretton Woods systems were fixed exchange rate systems, but people were able to redeem paper currency for gold domestically only under the gold standard.

Answer to Question 2

M2 will not change and M1 will rise by 1,000. When under your mattress, the 1,000 would be counted as currency. Going from a savings account to currency would raise M1, but both are part of M2, so M2 would not change.