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# There are fundamentally two possible changes in an economy

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Senior Manager
Joined: 19 Feb 2004
Posts: 414
Location: Lungi
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Kudos [?]: 27 [0], given: 0

There are fundamentally two possible changes in an economy [#permalink]

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07 Apr 2004, 07:40
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There are fundamentally two possible changes in an
economy that will each cause inflation unless other
compensating changes also occur. There changes are
either reductions in the supply of goods and services
or increases in demand. In a prebanking 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 true
that in a prebanking 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
(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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Joined: 30 Oct 2003
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Location: NewJersey USA
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07 Apr 2004, 10:53
B I guess. (I deleted duplicate post of lvb9th ). Increase in gold will lead to increase in the demand resulting in inflation.
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