The economy of Mainland uses gold as its money.If the government discovers a large reserve of gold on their land
A)the supply of money decreases and the value of money rises.
B)the supply of money increases and the value of money falls.
C)the demand for money increases and the value of money rises.
D)the demand for money decreases and the value of money falls.

Question

Quizplus · Accepted Answer

With the discovery of a large reserve of gold, the supply of money in Mainland will increase, as the government will be able to produce and circulate more money backed by the gold reserve. Therefore, the value of money in Mainland will decrease, as the increased supply of money will lead to inflation and reduced purchasing power of each unit of currency.

The Economy of Mainland Uses Gold as Its Money