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CR FROM VSTUDY 6c

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Senior Manager
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CR FROM VSTUDY 6c [#permalink] New post 15 Aug 2004, 14:01
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A
B
C
D
E

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Attached. I could not understand it..please provide your answers with explanations and basically what the argument means.
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 [#permalink] New post 15 Aug 2004, 15:49
B.......gold increases=>money increases=>increase in demand=>INFLATION!
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 [#permalink] New post 15 Aug 2004, 16:09
B is Exactly Right.

Two changes cause inflation (in the absence of compensatory changes).

One of the two is the level of demand, dicated by the supply of gold in a pre-banking economy.

So if the gold level increases (and nothing else changes) this will guarantee inflation.
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 [#permalink] New post 15 Aug 2004, 21:27
By the same reasoing..shouldnt C also be correct. I dont know why Iam unable to understand the question. OA is B.
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 [#permalink] New post 16 Aug 2004, 09:27
In prebanking economy the quantity of money available (and so the demand) is dependant on the quantity of gold. So as the gold increases the demand for money also increases, which will result in inflation. Whereas in C we cannot say if the quantity of gold decreases then the demand (no relevance to supply) will also decrease.
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 [#permalink] New post 16 Aug 2004, 09:35
Bhai wrote:
Whereas in C we cannot say if the quantity of gold decreases then the demand (no relevance to supply) will also decrease.


Actually, according to the stimulus, the level of demand is equivalent to the gold supply. So if the quantity of gold (the supply) decreases, demand WILL decrease.

However, the prepositions in the stimulus only tell us the following:

increase in demand -> inflation

we do not know whether a decrease in demand causes INFLATION (which is what C claims), and further more, we do not whether a decrease in demand cases deflation.
  [#permalink] 16 Aug 2004, 09:35
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