Explain why under the gold standard a perpetual surplus or a perpetual
QUESTION
Explain why under the gold standard a perpetual surplus or a perpetual deficit is impossible.
Because under the gold standard gold serves as international reserves. A country running a perpetual deficit would end up shipping all its gold abroad to pay for its deficits and would have no more to finance future ones. Also a country running a perpetual surplus would see gold
owing continually in. This would cause its monetary base to increase, its price level to go up, and its currency to depreciate. Obviously a countrys currency cant perpetually depreciate.
ANSWER:
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