Self-study
Economist: Support In any country, inflation occurs when the money supply grows more than the production of goods and services grows. ██████████ █████████ ██████ ████ ███ ██████████ ██ █████ ███ ████████ █████ ████ ████ ████ ███ █████ ███████ ██ ██ ████████ ████ ███████ ███ █████ ███████ ██ ███ █████ ██████ ██ ████ ███████ ██████ ██ ███████ ██ ████ ████████ ██ ██████████ ███████████ █████████ ██ ██████████
Summary
The author concludes that his country is very unlikely to experience significant inflation or deflation.
Why? Because of the following:
When the money supply grows more than the production of goods/services grows, inflation occurs.
When production of goods/services grows more than the money supply grows, deflation occurs.
In the author’s country, the money supply is very stable.
Notable Assumptions
We’re told about circumstances that lead to inflation and deflation. Since the author wants to prove that the country is unlikely to experience inflation and deflation, the author must be assuming that the circumstances that lead to inflation and deflation are unlikely to occur.
So, the author’s assuming that the money supply is unlikely to grow more than the production of goods/services grows. And, that the production of goods/services is unlikely grow more than the money supply grows.
To go even further with our prediction, we know that the money supply is very stable in the country — so the money is not going to grow. To show that the circumstances that lead to inflation/deflation won’t occur, the author must be assuming that the production of goods/services is also likely to be stable (so that it doesn’t grow more or less than the money supply grows).
23.
Which one of the following ██ ██ ██████████ ██ █████ ███ ███████████ ████████ ████████
a
Having stability in ███ ██████████ ██ █████ ███ ████████ ██ ███ ████ █████████ █████ ██ ██████████ █████████ ██ ██████████
Not necessary, because there can be other equally effective means of preventing inflation/deflation. For example, both money and goods/services could grow at the same rate. The author doesn’t have to assume that stability is the best way to prevent inflation/deflation.
b
Having an anchor ████ ██ ████ ██ █████████ ███ ███ █████████ ██ █ █████████ █████ ███████
Not necessary, because the author can believe there are other ways besides gold for a stable money supply. Although the author believes that having money anchored to gold is sufficient for the supply to stable, that doesn’t mean he believes its necessary.
c
The production of █████ ███ ████████ ██ ███ ███████████ ███████ ██ ████████ ██ ████ █████████
Necessary, because if it weren’t true — if the production of goods/services in the economist’s country is likely to grow markedly — then deflation would occur (because deflation occurs when production of goods/services grows more than money supply grows).
d
Inflation is no ████ ██████ ██ █████ ██ ███ ███████████ ███████ ████ ██ ██████████
Not necessary, because even if inflation is slightly more likely to occur than deflation, the economist can still try to prove that both are unlikely to happen. Maybe inflation has a 5% chance of happening, and deflation a 4% chance — you can still argue that both are unlikely.
e
A stable money ██████ ██ ███ ████ █████████ █████ ██ ██████████ ██████████
Not necessary, because there can be other equally effective means of preventing inflation/deflation. For example, both money and goods/services could grow at the same rate. The author doesn’t have to assume that stability is the best way to prevent inflation/deflation.