Kareem understands that he would require more than 1,500 euros in order to buy one ounce of gold as an investor researching the gold standard. The gold par value is represented by these euros.
In a par value system, member nations fix the value of their national currencies in relation to gold or the US dollar.
The "gold standard" is a monetary system that directly correlates the value of a country's currency or paper money with the price of gold. Under the gold standard, nations agreed to exchange paper money for a specified quantity of gold. In a country that follows the gold standard, the price of gold is fixed, and gold is bought and sold at that price.
Due to its tendency for volatility and the restrictions it placed on governments, the gold standard was abandoned. By maintaining a fixed exchange rate, governments were prevented from implementing expansionary policies to, for example, lower unemployment during economic downturns.
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