What is gold standard?

Question

explain what is gold standard.

Answer 1

The gold standard describes our country's former monetary policy where the United States dollar was convertible into a certain amount of gold.  This had the effect of limiting the devaluation of the dollar and keeping inflation in check.  Inflation is basically defined as too many dollars chasing too few goods, meaning that the price of the goods has to rise.  Inflation is caused when too many dollars are created and injected into the banking system, meaning each dollar is worth less because there are more of them.

President Nixon took the US off of the gold standard because the budget deficit increased after the Vietnam War and the increase in social programs in the 1960s.  With no gold standard, the US could then increase the amount of dollars to finance the budget deficit without having an adverse effect on the gold.  But the increase in the money supply led to inflation.