So I'm a total economics noob and I'm trying to understand some of the consequences of using vs. not using a gold standard listed on Brad DeLong's blog here: https://www.bradford-delong.com/why-not-the-gold-standard-talking-points-on-the-likely-consequences-of-re-establishment-of-a-gold-st.html. The first point DeLong mentions is that with a gold standard an economy somewhat loses it's ability to stimulate growth by increasing the money supply. He gives the following example:
...in the spring of 1995 the dollar weakened against the yen. Under a gold standard, such a decline in the dollar would not have been allowed: instead the Federal Reserve would have raised interest rates considerably in order to keep the value of the dollar fixed at its gold parity, and a recession would probably have followed.
It's been a while since I've taken Econ 101 so bear with me. I'm trying to work through this example with some simple test numbers to understand whats going on. Say that the U.S. is on the gold standard, and a \$1 bank note can be exchanged at any time for 1 unit of gold. In DeLong's example the dollar weakened against the yen, so let's say the exchange rate between dollar and yen was previously \$1/¥5, and now it's \$1/¥3.
I have a few, potentially silly questions. First, why does the change in exchange rate change the "gold parity" of the dollar? If a \$1 bank note still gets you one unit of gold (since the gold standard ensures it), won't you still be able to get one unit of gold, assuming you only have U.S. dollars? Maybe this assumption is where my confusion lies? My other thought was maybe that if the dollar weakens against the yen, people with yen will be able to get more gold, which may be problematic for the U.S's gold reserves, but how does increasing interest rates address this problem? As I recall, raising interest rates reduces the amount of money circulating in the economy. But again, \$1=1 unit of gold always, so how does this change things? Sorry if this is somewhat incoherent -- any help explaining DeLong's reasoning (ideally in very, very simple terms with not a lot of jargon) would be greatly appreciated. Thanks!