There are fundamentally two possible changes in an economy that will each cause inflation unless other compensating changes also occur. These 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

Question

Examsnet · Accepted Answer

Correct Answer is :  if other factors in the economy are unchanged, increasing the quantity of gold available will lead to inflation

GMAT Verbal Reasoning Practice Test 5