PrepTest 108, Section 2, Question 23
Economist: In any country, inflation occurs when the(56 more words not shown)
Which one of the following(9 more words not shown)
- AHaving stability in(16 more words not shown)
- BHaving an anchor(13 more words not shown)
- CThe production of(12 more words not shown)
- DInflation is no(11 more words not shown)
- EA stable money(9 more words not shown)
Reading the argument
What about the goods and services?
The economist gives us two moving parts: the money supply and the amount being produced. If money grows faster, we get inflation. If production grows faster, we get deflation. Keeping just one part steady doesn't keep the relationship steady.
Think about the goods side. If there's much less toilet paper available while people still have the same money to spend, that shortage can push its price up. If there's much more available, sellers may have to compete harder for the same spending. The point isn't that money must change first. A change in what is available can matter too.
I'll accept that gold keeps this country's money supply stable. But why couldn't production rise or fall? The economist has addressed the money and left the other part out.
What we’re looking for
For the necessary assumption, I'd predict something that keeps production stable too. Otherwise, we still have a route to the inflation or deflation the economist says is very unlikely.
Working the answers
- A
We don't need to rank methods of prevention. Maybe stabilizing production is the best approach; maybe some other approach works better. Either way, the economist still needs to address what will happen to production in this country. Calling one method “most effective” doesn't tell us that this country has the stability the argument needs.
- B
The economist says gold keeps this money supply stable. That doesn't require gold, or some other anchor, to be the only way to achieve stability. Another country could keep its money supply stable differently without causing any problem for this argument. B also leaves our question about production unanswered.
- CCorrect
This is narrower than our prediction, but it covers a necessary part of it. If production were likely to grow markedly while the money supply stayed stable, production would outpace the money supply. Under the economist's own rule, that would create a risk of significant deflation.
The economist cannot call significant deflation very unlikely while leaving a marked production increase likely. C rules out that threat.
Notice that C doesn't also address a big drop in production. It doesn't have to finish the entire argument. We're looking for something the reasoning needs, and keeping this route to deflation unlikely is one such requirement.
- D
The conclusion says significant inflation and deflation are both very unlikely. It doesn't compare which is more likely. One could be slightly more likely than the other while both remained very unlikely. Ranking the two risks would not fix the missing information about production.
- E
Even the most effective approach can leave a problem unresolved. A stable money supply might be the best available way to prevent inflation, but what if production changes sharply? That is still the missing part of the argument. We don't need a claim that this approach beats every other approach; we need grounds for thinking this country's production won't upset the balance.
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