--%>

Equilibrium of balance of payments

State mechanism that restores equilibrium of balance of payments in case it gets disturbed below the gold standard.

E

Expert

Verified

Adjustment mechanism under gold standard is known as price-specie-flow mechanism expounded by the David Hume. Under gold standard, disequilibrium of balance of payment will get corrected by counter-flow of gold. Assume that U.S. imports in large amount from the U.K. as compared to the latter. Under the classical gold standard, gold, that is the only mode of international payments, will flow from the U.S. to the U.K. Consequently, the U.S. (U.K.) may have a decrease (increase) in supply of money. Which state that the price level may tend to fall in U.S. and increase in the U.K. Consequently, U.S. products may become more competitive in the export market, on the other hand products of the U.K. becomes less competitive. This modification might improve the U.S. balance of payments and simultaneously hurt the U.K. balance of payments, finally removing the initial BOP disequilibrium.

   Related Questions in Financial Accounting

  • Q : Comprehensive Problem in Accounting

    Accounting Comprehensive Problem The case involves one accounting cycle (regular journal entries, adjusting journal entries, preparing financial statements,

  • Q : Creativity and the Individual What are

    What are the various aspects of Creativity on an individual in the creative industry ?    

  • Q : Define Asset Purchase Asset Purchase :

    Asset Purchase: Agreement between seller and buyer to obtain an organization's assets. In an asset purchase, only particular assets transfer ownership from seller to the buyer. Assets should be re-titled to the latest owner who has the capability to d

  • Q : Financial institutions & Economic growth

      It started with the US sub-prime mortgages on housing loans, which became worthless when home owners defaulted on their loans. The housing market promptly collapsed, wiping out Wall Street's revered investment banks and pull

  • Q : Types of groups Identify and describe 4

    Identify and describe 4 types of groups; provide examples.

  • Q : Accouning Required parts are clearly

    Required parts are clearly describes at the end of the questions and additional resource contains the journal article related to question three.. Approx 2000 word assignment.. First Question is of not more than 1000 words to make memorandum and its example is given at end of assignment and require

  • Q : Increase the return without any

    Suppose that treasurer of IBM has an extra cash reserve of $1,000,000 to invest for the six months. Six-month interest rate is 8% per annum in U.S. and 6% per annum in the Germany. Presently, spot exchange rate is DM1.60 per dollar and six-month forward exchange rate

  • Q : Super Profit Method in Goodwill Super

    Super Profit Method: (Goodwill method): When a firm earns huge profit in comparison to normal profit (usually earned by other firms of similar industry) then the difference is termed as Super Profit. Goodwill is computed on the basis

  • Q : Evaluation of discount and premium

    Describe how discount and premium are evaluated whenever the assets are priced-to-market. When would law of one price prevail within the international capital markets in case foreign equity ownership restrictions are imposed?

  • Q : Define status and role Define status

    Define status and role, explain the difference between the two, provide illustrations.