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There are fundamentally two possible changes in an economy [#permalink]
 24 Apr 2007, 05:28
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There are fundamentally two possible changes in an economy that will each cause inflation unless other compensating changes also occur. These changes are either reductions in the supply of goods and services or increases in demand. In a pre-banking economy, the quantity of money available, and hence the level of demand, is equivalent to the quantity of gold available.
If the statements above are true, then it is also that that in a pre-banking economy:
A. any inflation is the result of reductions in the supply of goods and services
B. if other factors in the economy are unchanged, increasing the quantity of gold available will lead to finlation
C. if there is a reduction in the quantity of gold available, then other things being equal, inflation must result
D. the quantity of goods and services purchasable by a given amount of gold is constant
E. whatever changes in demand occur, there will be compensating changes in the supply of goods and services
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Senior Manager
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According to me B or C anyone could be the answere.
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B increased demand (it's stated gold is equivalent to demand) leads to inflation.
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Senior Manager
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doc14 wrote: B increased demand (it's stated gold is equivalent to demand) leads to inflation.
Why not C.
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C states that a reduction in demand(gold) leads to inflation. Theopposite of B.
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B and C seem so marginally close to each other...  Difficult to identify which one it is....
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Intern
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I find in CR sometimes it helps to simplify & note down the relationships
e.g. gold up => demand up => inflation up.
gold down => inflation down etc.
They can be very wordy and simplifying them like this as you read can save a lot of time + makes the questions easier 
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doc14 wrote: I find in CR sometimes it helps to simplify & note down the relationships e.g. gold up => demand up => inflation up. gold down => inflation down etc. They can be very wordy and simplifying them like this as you read can save a lot of time + makes the questions easier Second that..B it is..Nice job doc...
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B.
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Senior Manager
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doc14 wrote: I find in CR sometimes it helps to simplify & note down the relationships e.g. gold up => demand up => inflation up. gold down => inflation down etc. They can be very wordy and simplifying them like this as you read can save a lot of time + makes the questions easier Okay i got it. Thank you
OA is B
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