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Q. How did the international monetary system influence macroeconomic policy-making and performance during the gold standard era (1870 - 1914)?
Answer: London was the hub of the international monetary system. The most important responsibility of the central bank was to preserve the official parity between its currency and gold. To sustain this price the central bank desirable an adequate stock of gold reserves. Central banks try to avoid sharp fluctuations in the balance of payments.
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Q. Explain how the AA schedule is derived. Answer: For a fixed real money supply an enhancement in output leads to an increase in the domestic interest rate. In the foreign e
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Q. Explain why in practice the extent to which a measured balance of payments disparity, either a surplus or a deficit, will affect home and foreign money supply is quite uncertain
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