Inflation and the Gold Standard

Inflation, at discussed in economics, is the rise in cost of goods and services in an economy over a period of time. Inflation is generally caused when money is printed in larger and larger quantities, thus being worth less and being unable to buy as much as the same amount of money would have before. Different economic philosophies have different views on the causes and effects of inflation, but they all tend to return to either a drop in the value of money, an increase in the value of goods or both. The gold standard is one way to control the rate of inflation. What the gold standard does is fix the value of gold, that is, the government owns a certain amount of gold and will only print as much money as they have gold. For example, if country X has 20 ounces of gold and they’ve fixed the price of gold at 20$ per ounce, then country X will only print 400$ worth of money (20 ounces x $20 per ounce = $400). The gold standard is one form monetary policy and is a historically popular method for controlling inflation, but it is not the only, nor necessarily the best.

Advertisements

Leave a comment

Filed under Economics

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s