When Germany was asked to pay 132 billion gold marks in wa

Printing more money while keeping the growth of the economy (total valuation of the economy constant) devalues the currency.

It is more like for a price of one, you are giving out two bills - Obviously one of the two bills will represent 50% of the price and hence devalues the currency.

When Germany was asked to pay 132 billion gold marks in war reparations following World War I, the German government had to print money to pay its bills, drastically devaluing the currency. In response to this anticipated de- valuation, Germans began spending their money while it still had purchasing power, almost completely depleting the monetary stores of domestic banks.

Premise : Germany is printing money -> Devaluing the currency.
Premise : Citizens are spending money from the banks which is deleting the bank reserves.
Conclusion : The mark will get devalued even more.

Which of the following, if true and taken together with the information above, best supports the conclusion that the devaluation of the German mark was likely to continue?

(A) The recipient governments of the war reparations began to demand that the reparations be paid in goods and commodities, such as coal.
-> It shouldn't devalue the mark as govt is not diluting the money reserve but giving out from it's commodities reserve - Incorrect

(B) The amount of 132 billion gold marks was the largest war reparations amount ever levied to that point.
-> Out of scope - Incorrect

(C) In the post-World War I period, the German government had only two options for preventing complete economic collapse: print money or take out loans from domestic banks.
-> Govt doesn't have any other choice but to print money again as bank reserve has dried up - Correct

(D) Printing currency causes inflation when the money is not based on hard assets such as gold or land.
-> We are not talking about the inflation Out of scope - Incorrect

(E) The more consumers make purchases, the more money is returned into a country’s economy.
-> That should increase the mark valuation and not decrease it - Incorrect

Argument:
Germans needed to pay bills so they started printing money.
Printing money devalues currency.
Anticipating devaluation, Germans started spending money depleting money from banks.

We need to support: "devaluation of the German mark was likely to continue"
That the situation was such that devaluation would have continued.

(C) In the post-World War I period, the German government had only two options for preventing complete economic collapse: print money or take out loans from domestic banks.
Options were two only - print money or take out loans
Since banks were depleted, taking out loans would not have been possible. So printing money would have continued. We know that devalues currency. So currency would have continued to be devalued.
Correct answer

(E) The more consumers make purchases, the more money is returned into a country’s economy.
We don't have a link of "more money in economy" and "devaluation of the currency" given to us in the argument. Then we cannot establish that consumer spending will lead to devaluation of the currency. The link given is of "printing money" and "devaluation of currency" only.
Hence (E) is not correct.
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OE-
For the devaluation to continue..we have to prove that the German government has no other option but to print more money..How can we do that?


C-Only 2 options with the govt. of which one is eliminated by the depleted monetary deposits of the banks (as stated in the premise)

D-Those interested in Why D is wrong..It tells us why the currency is going down and does not help in reducing the logical gap

Key to this question- This one is easy if one understands what it asks..I couldn't anyways ..

When Germany was asked to pay 132 billion gold marks in war reparations following World War I, the German government had to print money to pay its bills, drastically devaluing the currency. In response to this anticipated de- valuation, Germans began spending their money while it still had purchasing power, almost completely depleting the monetary stores of domestic banks.

Which of the following, if true and taken together with the information above, best supports the conclusion that the devaluation of the German mark was likely to continue?

Given: When Germany had debt in WW1, Govt --> print money --> drastically devaluing the currency --> Germans began spending their money --> completely depleting the monetary stores of domestic banks

Pre thinking: Look for the answer that suggests that trend is likely to continue.

(A) The recipient governments of the war reparations began to demand that the reparations be paid in goods and commodities, such as coal. So what????

(B) The amount of 132 billion gold marks was the largest war reparations amount ever levied to that point. So what??

(C) In the post-World War I period, the German government had only two options for preventing complete economic collapse: print money or take out loans from domestic banks. No other options available so, govt will print more money or take more loans from domestic bank which is already in bad shape hence Govt will left with only one choice i.e. print money. Option suggesting that vicious cycle to continue.

(D) Printing currency causes inflation when the money is not based on hard assets such as gold or land. Irrelevant

(E) The more consumers make purchases, the more money is returned into a country’s economy. Irrelevant

Can you someone please explain why D is wrong? Why is it considered irrelevant? Thanks.

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i somehow didn't like the question for i feel that this info is left stranded :"In response to this anticipated de- valuation, Germans began spending their money while it still had purchasing power, almost completely depleting the monetary stores of domestic banks."

the question is asking us to give a statement that will support the conclusion that devaluation of German money will continue when two episodes as mentioned are happening simultaneously,i.e.,
fact 1 :the German government had to print money to pay its bills, drastically devaluing the currency

fact 2 : In response to this anticipated de- valuation, Germans began spending their money while it still had purchasing power, almost completely depleting the monetary stores of domestic banks

I dont see what is wrong with these 2 episodes being simultaneous

i didn't mean "simultaneous" per se .my point is that the option C is leaving fact 2 stranded !!
BTW i hope u will agree that "German govt taking out loans from banks" is not equivalent to "Germans began spending their money while it still had purchasing power, almost completely depleting the monetary stores of domestic banks". because if that is the case then C can be a contender !!

I guess it is..Money in the banks- Govt can borrow...No money-No loans

How does taking out loads from domestic banks keeps the de-valutation of the mark?

C cos if the only alternative to printing is borowing from banks then it will continue cos the alternative is not viable as stated in the argument that the banks deposited is almost depleted. They are left with the only option of printing whcih devalues. C

Government had only two options, therefore, it chose one option, to print money, causing devaluation. This is closed chapter. Now, we need to show the reason for which devaluation will likely to continue in future. Is option C telling the reason for continuation of devaluation in future?
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Dear VeritasKarishma VeritasPrepBrian AnthonyRitz IanStewart MartyTargetTestPrep DmitryFarber GMATNinja,

Why is choice E. wrong?

(E) The more consumers make purchases, the more money is returned into a country’s economy.

The obvious result from choice E. is that more money would be flooded into the economy.
This result should be the SAME as German government's printing money because whether the more money printed or withdrawn from the banks the more money circulated in the system (in this case, Germany)!
Thus, the money should be depreciated.

In fact, this reasoning is in line with the economic sense.
When more money is circulated within an economy, high inflation is expected because the excessively large amount of money in the system drives the prices of items much higher. With high inflation, the money is devalued, i.e. the money in our pocket is less valued.

Why is this thinking wrong?

Thank you for your help

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