The great depression 4 of 6 The golden culprit

Before the First World War, countries are under the gold standard. The binding of gold with paper money can’t keep up with the enormous demand for supplies by the countries involved, and so they abandoned the gold standard. When the war was over, the value of the economy was way higher than that of pre-war levels. New commodities are being added into inventory as demand was soaring but the quantity of gold around the globe never increased. As countries began thinking of going back into the gold standard, the ingredients for a worldwide economic contraction is brewing.

Countries like Great Britain are stubborn in finding ways on how to match its huge piles of printed currency or newly created value in its economy with the limited value and supply of gold. Their idea that seemed to them as feasible was to undergo deflation. Reducing price levels is a mini local economic contraction; it is tolerable as long as the rate of inflation is not as high. The effect was reduced sales, increased unemployment and an overvalued Pound.

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