Official Explanation

Argument Construction

This question asks us which of the statements is most strongly supported by the information in the argument. Given no other relevant changes, two factors can cause inflation: a reduction in market supply of goods and services or an increase in market demand. The argument also indicates that the total quantity of money available—or, in a pre-banking economy, the quantity of gold available—determines market demand. Therefore, in a pre-banking economy, an increase in the quantity of gold available will increase demand. In a situation where supply remains constant, this increases demand for this fixed supply, thereby raising prices. In other words, increasing the quantity of gold in a pre-banking economy will cause inflation.

A. While this may be true in certain cases, it is not the argument made in the passage. The passage indicates that certain instances of inflation are caused by increased demand stimulated by an increase in available money (or gold).

B. Correct. According to the information in the passage, if the quantity of available gold in a pre-banking economy increases while supply of goods and services remains unchanged, demand for goods and services will increase relative to supply. This imbalance raises prices for the supply; that is, it causes inflation.

C. This answer suggests the opposite of the information in the passage. While the information in the passage indicates that an increase in the quantity of available gold may cause inflation, this choice suggests that a reduction in the available amount of gold will cause inflation.

D. This suggestion is contrary to the information in the passage: the passage suggests that in a pre-banking economy, the total available amount of gold determines the amount that a good or service will cost. This answer choice suggests that the total available amount of gold is irrelevant to the cost of given goods or services.

E. The passage nowhere indicates that economies will compensate for changes in demand by changing available supply. This suggestion may or may not be true in real-world terms, but there is no information in the passage to support it.

The correct answer is B.