Which of the following activities occurred under the gold standard?

• A. Inflation rates were primarily controlled through discretionary fiscal policy.
• B. Governments issued fiat money without any backing by precious metals.
• C. Countries fixed the value of their currencies to a specific amount of gold.
• D. Central banks frequently adjusted exchange rates to stabilize trade balances.

Answer: (C)

Verified step by step guidance

1. Understand the definition of the gold standard: it is a monetary system where a country's currency value is directly linked to a specific amount of gold.
2. Recognize that under the gold standard, currencies are not fiat money; instead, they are backed by gold reserves, meaning the government must hold gold to issue currency.
3. Recall that inflation control under the gold standard is not primarily through discretionary fiscal policy, but rather through the fixed gold value limiting money supply expansion.
4. Note that exchange rates under the gold standard are fixed because each currency is pegged to gold, so central banks do not frequently adjust exchange rates to stabilize trade balances.
5. Conclude that the correct activity under the gold standard is that countries fixed the value of their currencies to a specific amount of gold.