<Li> The money supply would essentially be determined by the rate of gold production . When gold stocks increase more rapidly than the economy, there is inflation and the reverse is also true . The consensus view is that the gold standard contributed to the severity and length of the Great Depression . </Li> <Li> Hamilton contended that the gold standard is susceptible to speculative attacks when a government's financial position appears weak . Conversely, this threat discourages governments from engaging in risky policy (see moral hazard). For example, the U.S. was forced to contract the money supply and raise interest rates in September 1931 to defend the dollar after speculators forced the UK off the gold standard . </Li> <Li> Devaluing a currency under a gold standard would generally produce sharper changes than the smooth declines seen in fiat currencies, depending on the method of devaluation . </Li> <Li> Most economists favor a low, positive rate of inflation of around 2% . This reflects fear of deflationary shocks and the belief that active monetary policy can dampen fluctuations in output and unemployment . Inflation gives them room to tighten policy without inducing deflation . </Li>

Does us currency have to be backed by gold