Economist: In any country, inflation occurs when the money supply grow

Supply>Production --> Inflation
Production>Supply --> Deflation

Gold= supply=stable

Conclusion= There will be no inflation of deflation in my country.

Gap= There are two factos to describe inflation and deflation. Those are supply and production.
BUT the author only talks about supply when it comes to his country. What about production ? It can also vary.

Option C points that.

Clearly C.

In my country, gold anchors the money supply, so the money supply is very stable.
Hence, my country is very unlikely to experience significant inflation or deflation.

Okay, so money is stable because of gold. But is stability of money the only thing that affects inflation? What about production?
It might be the case that even though money is stable in the market, the production decreases significantly leading to inflation.
Or, it might be the case that even though money is stable in the market, the production increases significantly leading to deflation.

Clearly, money AND production levels are both the affecting factors.

Thus answer is choice (C) The production of goods and services in the economist’s country is unlikely to grow markedly as the author needs to assume that if money is stable + (assumption = production is stable) ---> only then can inflation/deflation be stable.

Hey Sajjad, I am still unable to understand the answer choice C , would be very helpful if you come up with a detail solution of this question and the chosen answer, so that i will be able to find out at which point I miscomprehended the questions

What is your reasoning on the question? What should be the answer according to your point of view?

Economist: In any country, inflation occurs when the money supply grows more than the production of goods and services grows. Similarly, deflation occurs when the production of goods and services grows more than does the money supply. In my country, gold anchors the money supply, so the money supply is very stable. Hence, my country is very unlikely to experience significant inflation or deflation.

Which one of the following is an assumption on which the economist’s argument depends?

Like Gold anchors the money supply in economist's country, the highlighted text anchors the whole passage.

(A) Having stability in the production of goods and services is the most effective means of preventing inflation or deflation. - WRONG. Leads us to believe in some sort of comparison but there's no such thing exists than can be deciphered from the passage. Superlative meaning is not at all there.

(B) Having an anchor such as gold is necessary for the stability of a country’s money supply. - WRONG. Had 'sufficient' been there instead of 'necessary', the choice would have had some considerable weight of being the right answer, depending upon the other choices.

(C) The production of goods and services in the economist’s country is unlikely to grow markedly. - CORRECT. Both 'unlikely' and 'markedly' are giving a balanced meaning(anchoring nicely eventually) to the passage.

(D) Inflation is no more likely to occur in the economist’s country than is deflation. - WRONG. This is good as an inference rather than an assumption.

(E) A stable money supply is the most effective means of preventing inflation. - WRONG. Yes, there's been two things - inflation and deflation - but bringing a comparison is not what passage suggests to make. Additionally, superlative words like 'most' would never give the balance that is required between the two. Just like A, this is wrong.

Answer C.

This is a simple question. Argument first defines what is INFLATION & DEFLATION as follows:

If SUPPLY (PRODUCTION) < DEMAND (GOLD), then INFLATION

If SUPPLY (PRODUCTION) > DEMAND (GOLD), then DEFLATION

Then it concludes that since DEMAND (GOLD) is constant, there would be no INFLATION or DEFLATION.

Now it is quite common sense that even if DEMAND is constant, there is every possibility that SUPPLY (PRODUCTION) could still change substantially and create INFLATION or DEFLATION.

This is what the Option C says. Thats the answer.

If I want to STRENGTHEN this argument, I could have introduced another Option stating ''SUPPLY WILL ALWAYS REMAIN EQUAL TO DEMAND'', in such scenario, the argument holds good.

Regards
Vighnesh

The argument mentions stability of money flow (via gold in this case) but nothing for goods & services. Assumption surrounds stability of goods & services. Hence, C.