[A:] Excellent question! First we'll have a quick history lesson, then we'll see how it works and how it differs from fiat money.
Definition of the Gold Standard
My normally extensive Economics Glossary does not have an entry on the gold standard, so we'll have to look elsewhere for a definition.A Very Brief History of the Gold Standard
If you would like to learn about the history of money in detail, there is an excellent site called A Comparative Chronology of Money which details the important places and dates in monetary history.What Do We Use Today?
Almost every country, including the United States, is on a system of fiat money, which the glossary defines as "money that is intrinsically useless; is used only as a medium of exchange". We saw in the article "Why Does Money Have Value" that the value of money is set by the supply and demand for money and the supply and demand for other goods and services in the economy. The prices for those goods and services, including gold and silver, are allowed to fluctuate based on market forces. Next we'll look at how the monetary system used can change other variables in the economy.http://economics.about.com/cs/neoclassical/a/value_of_money.htm