When Germany was asked to pay 132 billion gold marks in war reparations following World War I, the German government had to print money to pay its bills, drastically devaluing the currency. In response to this anticipated de- valuation, Germans began spending their money while it still had purchasing power, almost completely depleting the monetary stores of domestic banks.
Which of the following, if true and taken together with the information above, best supports the conclusion that the devaluation of the German mark was likely to continue?
(A) The recipient governments of the war reparations began to demand that the reparations be paid in goods and commodities, such as coal.
(B) The amount of 132 billion gold marks was the largest war reparations amount ever levied to that point.
(C) In the post-World War I period, the German government had only two options for preventing complete economic collapse: print money or take out loans from domestic banks.
(D) Printing currency causes inflation when the money is not based on hard assets such as gold or land.
(E) The more consumers make purchases, the more money is returned into a country’s economy.
OA is C
Please explain why option E is incorrect?
Which of the following, if true and taken together with the information above, best supports the conclusion that the devaluation of the German mark was likely to continue?
(A) The recipient governments of the war reparations began to demand that the reparations be paid in goods and commodities, such as coal.
(B) The amount of 132 billion gold marks was the largest war reparations amount ever levied to that point.
(C) In the post-World War I period, the German government had only two options for preventing complete economic collapse: print money or take out loans from domestic banks.
(D) Printing currency causes inflation when the money is not based on hard assets such as gold or land.
(E) The more consumers make purchases, the more money is returned into a country’s economy.
OA is C
Please explain why option E is incorrect?
Last edited by conquistador on Tue Mar 01, 2016 1:24 am, edited 1 time in total.
