Florida Teacher Certification Examinations (FTCE) Social Science Practice Test

What effect did the discovery of the New World have on the European economy in the 16th century?

1. It strengthened the craft guilds

2. It discouraged government intervention in entrepreneurship

3. It caused inflation due to increased precious metals

4. It had no noticeable economic effect

The correct answer is: It caused inflation due to increased precious metals

The discovery of the New World had a significant impact on the European economy in the 16th century, primarily because it led to an influx of precious metals, particularly gold and silver, from the Americas. This influx resulted in substantial economic changes, one of which was inflation. As large quantities of these precious metals entered European markets, the increased supply drove down their value, contributing to price increases across various goods and services. This phenomenon, known as "price revolution," brought about a range of economic consequences, including the stimulation of trade and the rise of a merchant class, but it fundamentally altered the dynamics of supply and demand within the European economy. The discovery did not particularly strengthen craft guilds or discourage government intervention in entrepreneurship. In fact, the surge in wealth prompted many governments to actively support exploration and colonial ventures, which often led to a more interventionist approach in the economy, as states sought to enhance their wealth and power through mercantilist policies. Additionally, the assertion that there was no noticeable economic effect contradicts the significant transformations that were witnessed due to the influx of wealth from the colonies. Overall, the correct response highlights the direct correlation between the discovery of the New World and the inflationary pressures experienced in Europe during that period.