- 04/14/2019 at 10:44 am #468419EduGorillaKeymasterSelect Question Language :
Directions: The passage given below is followed by a question. Choose the appropriate answer to the question.
Inflation can only be fundamentally caused by two factors: Supply side factors and demand side factors. These factors are either reduction in the supply of goods and services or increase in the demand due to either the interfered availability of money or the reallocation of demand. Unless other compensating changes also occur, inflation is bound to result if either of these occurs. In economies prior to the introduction of banks (a pre-banking economy), the quantity of money available and hence, the level of demand was equivalent to the quantity of gold available.
If the above statements are true, then it is also true that in a pre-banking economy,
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- any inflation would be the result of reductions in the supply of goods and services
- if other factors in the economy are unchanged, increasing the quantity of gold available would lead to inflation
- if there is reduction in the quantity of gold available, then, other things being equal, inflation would result
- whatever changes in demand occur, there would be compensating changes in the supply of goods and services
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