PT108.S2.Q23

PrepTest 108 - Section 2 - Question 23

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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).

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23.

Which one of the following ██ ██ ██████████ ██ █████ ███ ███████████ ████████ ████████

a

Having stability in ███ ██████████ ██ █████ ███ ████████ ██ ███ ████ █████████ █████ ██ ██████████ █████████ ██ ██████████

b

Having an anchor ████ ██ ████ ██ █████████ ███ ███ █████████ ██ █ █████████ █████ ███████

c

The production of █████ ███ ████████ ██ ███ ███████████ ███████ ██ ████████ ██ ████ █████████

d

Inflation is no ████ ██████ ██ █████ ██ ███ ███████████ ███████ ████ ██ ██████████

e

A stable money ██████ ██ ███ ████ █████████ █████ ██ ██████████ ██████████

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