Described the advantages & disadvantages of the gold standard.
The advantages of the gold standard comprise: (I) as the supply of gold is limited, countries cannot comprise high inflation; (2) any BOP disequilibrium can be automatically corrected through cross-border flows of gold. Conversely, the basic disadvantages of the gold standard are: (I) the world economy can be subject to deflationary pressure because of restricted supply of gold; (ii) the gold standard itself has no mechanism to enforce the rules of the game, and, as a result, countries may pursue economic policies (such as de-monetization of gold) that are incompatible with the gold standard.