Questions that ask about "primary purpose" must take into account the passage in
its entirety. Overall, this passage is about the differing predictive uses of the
various economic indicators.
(A) CORRECT. The passage does indeed focus on the utility of "various economic
(B) This choice mistakenly focuses on a process that is not discussed in the
(C) This choice focuses only on a few sentences in the last paragraph of the
(D) This choice mischaracterizes the intent of the passage in using the verb "trace",
which implies a chronology.
(E) This choice is incorrect in describing the author's purpose with the verb "to
argue." The author does not present an argument in the passage, but rather an
The third paragraph states that mortgage applications and profit margins are
examples of leading indicators, which have the greatest predictive power.
Therefore, we need to find an answer choice that relates to either mortgage
applications or profit margins.
(A) This choice focuses on the employment rate, which is a coincident indicator
(B) This choice focuses on the number of new homes being built, which is not
discussed in the passage. Do not assume that the number of new homes being built
can be correlated with mortgage applications, which are indeed a leading indicator
(C) This choice focuses on manufacturing, which is a coincident indicator (paragraph
(D) CORRECT. Imminent changes in the economic cycle are indicated by leading
indicators, of which profit margins are an example (paragraph 3). The increase
described in this choice is indeed a profit margin (revenue minus cost).
(E) This choice focuses on bankruptcies, which are not mentioned in the passage.
In the last paragraph, the author writes: "Establishing a solid framework for
understanding the behavior of these indicators helps economists to avoid
miscalculations and to guide the country through periods of slow or negative
(A) CORRECT. This choice is consistent with the information contained in the last
(B) This choice focuses only on a subpart of this analysis: the role of the indicators
for the private investor.
(C) This choice is not reflected in the passage.
(D) This choice focuses only on downturns whereas the indicators are used for either
upward or downward economic change.
(E) This choice is not reflected in the passage.
4. Lagging indicators have no predictive power. They serve simply as confirmation of
the recent state of the economy. Therefore, lagging indicators would not be helpful in
determining future courses of action.
(A) This does not require predictive power.
(B) CORRECT. This choice – cutting costs to avoid short-term losses – requires
predictive power. And so lagging indicators would not be helpful in determining
whether companies should follow this course of action.
(C) This does not require predictive power.
(D) This does not require predictive power.
(E) This does not require predictive power.
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