The demise of the gold standard led to:
A. more international trade.
B. greater and greater devaluation.
C. freely floating exchange rates.
D. balance-of-payment surpluses.
I think it's C???
You are correct! The correct answer is C. freely floating exchange rates. The demise of the gold standard did lead to the adoption of freely floating exchange rates.
To understand why the demise of the gold standard led to freely floating exchange rates, let's break it down.
The gold standard was a monetary system in which currencies were directly linked to the value of gold. Under this system, countries' central banks had to hold a certain amount of gold reserves to back their currencies. The value of a currency was fixed in terms of gold, and exchange rates between different currencies were determined by their respective gold values.
However, the gold standard started to face challenges and became less sustainable during the 20th century. The Great Depression and the two World Wars put significant strain on countries' gold reserves. Additionally, the fixed exchange rates constraints of the gold standard limited the ability of governments to pursue their economic and monetary policies.
As a result, countries began abandoning the gold standard, especially during the 1930s and 1940s. This led to the adoption of alternative exchange rate systems, such as managed float or pegged rates. Eventually, many countries transitioned to freely floating exchange rates.
Under freely floating exchange rates, the value of a currency is determined by the market forces of supply and demand. It can fluctuate freely based on factors such as interest rates, inflation, economic conditions, and investor sentiment. This system allows for greater flexibility and adjustment, as exchange rates can respond to changing economic conditions.
So, option C, freely floating exchange rates, is the correct choice, as it accurately reflects one of the outcomes of the demise of the gold standard.