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2. Suppose that your country officially defines gold as ten times more valuable than silver (i.e., the central bank stands ready to redeem the currency in gold and silver and the official price of gold is ten times the official price of silver). If the market price of gold is only eight times as much as silver, what would smart investors do to take advantage of the situation? How would their actions change the situation? 3. Prior to the 1870s, both gold and silver were used as international means of payment and the exchange rates among currencies were determined by either their gold or silver contents. Suppose that the US dollar was pegged to gold at $30 per ounce, the French franc was pegged to gold at 90 francs per ounce and to silver at 9 francs per ounce, and the German mark was pegged to silver at 1 mark per ounce. a. What would the exchange rate between the US dollar and the French franc be under this system? b. What would the exchange rate between the French franc and the German mark be under this system? c. What would the exchange rate between the US dollar and the German mark be under this system? 4. Assume the gold standard. If Italy imports more from Turkey than it exports to Turkey, describe how this trade imbalance would be corrected by the price-specie-flow mechanism

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