Q23 - economist: in any country, inflation occurs when

[mkd000]

can someone please break down the conditional reasoning in this question for me?

is it inflation -> money supply grows more than goods/services or is it money supply grows faster than goods/services -> inflation.

Thanks!

[rinagoldfield]

Thanks for your question! There’s definitely a lot of conditional logic going on here.

First, a glossary of terms:

MSG = money supply growth
PGSG = production of goods and services growth
I = inflation
D = deflation
G = Gold

Ok, to the premises.

MSG > PGSG --> I
PGSG > MSG --> D
G --> little MSG
G.
Therefore, ~D + ~I

What is the issue here?

Well, the relationship between PGSG and MSG causes inflation or deflation. However, the author only looks at one component (MSG) of this relationship. The author overlooks the impact of the PGSG. For example, if PGSG goes way up, then it will exceed MSG and cause deflation.

(C) gets at this flaw.
(A) and (E) talk about what is “most effective,” which is not discussed by the argument.
(B) reverses the logic of the G --> little MSG premise.
(D) erroneously compares the likelihood of D and I. The author simply says that both are unlikely.

Hope this helps!
Best,
Rina