Econia is on the gold standard for its currency, which is called the econar. If a new deposit of gold is discovered in Econia, what is likely to happen to the purchasing power of the econar?
A) More gold will lead to deflation and decrease the purchasing power of the econar.
B) More gold will trigger inflation, which will increase the purchasing power of the econar.
C) More gold will lead to deflation and increase the purchasing power of the econar.
D) More gold will lead to inflation and decrease the purchasing power of the econar.

Question

Quizplus · Accepted Answer

When a country on the gold standard discovers more gold, it typically leads to an increase in the money supply if that gold is used to mint more currency. This can cause inflation, which decreases the purchasing power of the currency, as more money is chasing the same amount of goods and services.

Econia Is on the Gold Standard for Its Currency, Which