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If Gold Prices Are The Same Everywhere, Then Why Aren't House Prices - Research Proposal Example

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The research proposal 'If Gold Prices Are The Same Everywhere, Then Why Aren't House Prices?' addresses the issue of real estate prices, as well as reveals the history of the global trading system, and details the significant changes in domestic markets that affect the market value of houses…
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If Gold Prices Are The Same Everywhere, Then Why Arent House Prices
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Extract of sample "If Gold Prices Are The Same Everywhere, Then Why Aren't House Prices"

Download file to see previous pages Using the basic economic supply and demand curve, it is easier for us to examine how prices and available supply affect the existing market behavior.
To enable us to understand the major factor that makes the prices of gold remains the same over time but not the housing prices, the history of the global trading system will first be tackled. Using the theories of microeconomics, significant changes within the domestic markets that contribute to the changes in the market value of houses will be thoroughly discussed.
Between the years 1879 to 1934, trading of goods between two countries occurred using the gold standard which enabled traders to pay goods and services in exchange with the quantity of gold (McConnell & Brue, 2004: p. 478). Since the value of gold remains the same in each country, there was officially a fixed exchange rate all over the world. Eventually, the use of fixed exchange rate resulted in a negative international demand shock since the prices of goods from one country to another remains the same (Eichengreen, 1996).
The global economic depression that happened back in the 1930s changes the concept of having a fixed exchange rate. (McConnell & Brue, 2004: p. 479) In order to promote free competition within the domestic and global trading markets, some nations have considered making the cost of exportation cheaper by devaluating their currency against the real value of gold.
As part of strengthening the adjustable-peg system which was introduced under the Bretton Woods System1, each country agreed to accept gold and the US dollar as the benchmark for international reserves since the US was able to accumulate the biggest supply of gold as compared with other countries (McConnell & Brue, 2004: p. 480). As a result, the agreed equivalent of gold in terms of the US dollar is US$35 per ounce (Bougrine & Seccareccia, 2004).
Aiming to avoid economic bias between the Americans and people across the world, the central bank strictly prohibits any Americans to purchase gold using the agreed conversion rate which is US$35 per ounce of gold. Instead, the Americans were allowed to purchase gold based on the prevailing market price. ...Download file to see next pagesRead More
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