LSAT 108 | Section 2 | Logical Reasoning: Q23

LR Question 23 Explanation

QUESTION TEXT: Economist: In any country, inflation occurs when …

QUESTION TYPE: Necessary Assumption

CONCLUSION: My country probably won’t experience significant inflation or deflation.

REASONING:

• Inflation happens when the money supply grows faster than goods and services.
• Deflation happens when goods and services grow faster than the money supply.
• My country’s money supply is very stable because it’s tied to gold.

ANALYSIS: Is a stable money supply, by itself, enough to prevent inflation and deflation?

No. Inflation and deflation depend on the relationship between two things: (1) the money supply, and (2) the production of goods and services.

Even if the money supply stays perfectly stable, you could still get:

• Inflation if production collapses or
• Deflation if production skyrockets

So the argument needs to assume that production of goods and services is also unlikely to change dramatically. Otherwise, a stable money supply tells us very little.

___________

1. The argument doesn’t care what the most effective method is. Even if another method works better, the economist could still conclude that his country is unlikely to experience inflation or deflation.
2. The economist only says that gold happens to stabilize his country’s money supply. The argument doesn’t require gold to be the only possible way to achieve stability.
3. CORRECT. Inflation and deflation depend on changes in production relative to the money supply. If production were likely to grow a lot, then that would cause deflation.
   Negation: The production of goods and services in his country is likely to grow significantly.
4. The conclusion is simply that both are unlikely. One could still be more likely than the other and both could remain very unlikely overall.
5. Again, the argument doesn’t need the most effective way of preventing inflation. It only needs stability to provide some reason to think inflation and deflation are unlikely.