Mercantilist thought, circa 1500-1750, implicitly assumed that: (a) total wealth in the world is fixed

Economics Dec 05, 2020

Mercantilist thought, circa 1500-1750, implicitly assumed that:

(a) total wealth in the world is fixed. (b) economic wisdom derives from a proper reading of scripture. (c) free trade is the best way to maximize the wealth of a nation and trade is a win-win game. (d) excessive amounts of gold quickly trigger inflationary pressure.

Expert Solution

Mercantilist thought emphasizes the improvement in current account balance with the help of government policies such as tariffs on import or subsidies on exports. The implicit assumption of this theory is to maintain the gold reserve and foreign reserve because it improves the economic condition that, in turn, increases aggregate demand, which further leads to an increase in price and inflation rate.

Hence, the correct option is: (d) excessive amounts of gold quickly trigger inflationary pressure.

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