There are fundamentally two possible changes in an economy that will each cause inflation unless other compensating changes also occur. These changes are either reductions in the supply of goods and services or increases in demand. In a prebanking economy the quantity of money available, and hence the level of demand, is equivalent to the quantity of gold available.
If the statements above are true, then it is also true that in a prebanking economy
(B) if other factors in the economy are unchanged, increasing the quantity of gold available will lead to inflation
(C) if there is a reduction in the quantity of gold available, then, other things being equal, inflation must result
I have just gone through the same question and made the same mistake as yours. We falled to understand the last sentence. it says gold means money. so gold is more means money is more and thus inflation occurs
