Question 1:

A and B are two equal-sized countries whose currencies are pegged to gold, the world stock of which is constant. Although aggregate investment is unaffected, B becomes a better and A a worse place for investors to place their capital. This will

1. cause gold to flow from A to B in the short-run.

2. cause gold to flow from B to A in the short-run.

3. cause the price level in A to rise in the long-run.

4. cause the world interest rate to rise in the short-run but remain unchanged in the long-run.

Choose the correct option