In the "Gold Standard" Framework of the Period 1880-1914, Suppose

Multiple Choice

In the "gold standard" framework of the period 1880-1914, suppose that the par value exchange rate is $2.00/£1. If the market exchange rate rises to $2.12/£1 because of a rise in U.S. demand for British goods, and if it costs $0.05 to ship gold between the two countries, there would be __________. Then, if the "rules of the game" were being followed, the money supply in the United States would __________ after this movement of gold.

A) an inflow of gold to the U.S. Treasury from the Bank of England; decrease
B) an inflow of gold to the U.S. Treasury from the Bank of England; increase
C) an outflow of gold from the U.S. Treasury to the Bank of England; decrease
D) an outflow of gold from the U.S. Treasury to the Bank of England; increase