Conventional wisdom holds that increasing government : GMAT Critical Reasoning (CR)
Check GMAT Club Decision Tracker for the Latest School Decision Releases http://gmatclub.com/AppTrack

 It is currently 20 Jan 2017, 07:40

### GMAT Club Daily Prep

#### Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

# Events & Promotions

###### Events & Promotions in June
Open Detailed Calendar

# Conventional wisdom holds that increasing government

Author Message
TAGS:

### Hide Tags

Manager
Joined: 23 Jan 2011
Posts: 127
Followers: 1

Kudos [?]: 70 [0], given: 13

Conventional wisdom holds that increasing government [#permalink]

### Show Tags

16 Jul 2011, 07:37
2
This post was
BOOKMARKED
00:00

Difficulty:

65% (hard)

Question Stats:

60% (02:43) correct 40% (02:17) wrong based on 183 sessions

### HideShow timer Statistics

Conventional wisdom holds that increasing government spending can boost economic growth, especially during a recession. However, sustaining higher levels of government spending over the long term can limit economic growth. When the government spends more money than it collects from taxes, running a budget deficit, it must issue bonds to borrow the money necessary to make up the difference. The private sector, whose bonds compete with those issued by the government, are forced to pay higher interest rates in order to borrow the money necessary for capital expenditures, such as increasing capacity or starting new businesses. Higher interest rates raise the cost of operating a business, thereby restricting the growth of businesses and the economy.

The bolded phrase in the argument above serves which of the following functions?

It shows that the interest rates paid by private sector business to borrow money are greater than that paid by the government.

It is offered as a reason that deficit spending by the government must be limited.

It supports the conclusion that government spending should not be used to increase economic growth during a recession.

It is a hypothesis supported by the observation that a budget deficit forces the government to borrow money by issuing bonds.

It helps show how government budget decisions indirectly affect the growth of businesses.
[Reveal] Spoiler: OA
If you have any questions
New!
Senior Manager
Joined: 24 Mar 2011
Posts: 457
Location: Texas
Followers: 5

Kudos [?]: 167 [0], given: 20

### Show Tags

16 Jul 2011, 09:59
E.

Key is to understand how increase in govt spending indirectly restricts growth of new /existing business.
Intern
Joined: 24 May 2011
Posts: 11
Location: Sydney-Brussels
Followers: 0

Kudos [?]: 0 [0], given: 0

### Show Tags

16 Jul 2011, 17:50
Easy E!
Senior Manager
Joined: 08 Jun 2010
Posts: 397
Location: United States
Concentration: General Management, Finance
GMAT 1: 680 Q50 V32
Followers: 3

Kudos [?]: 88 [0], given: 13

### Show Tags

17 Jul 2011, 23:38
E.
Interesting! This is the first time I have seen a single bold phrase question.

Posted from my mobile device
Manager
Joined: 09 Jun 2011
Posts: 92
Followers: 0

Kudos [?]: 1 [0], given: 0

### Show Tags

13 Sep 2011, 08:05
E....
Manager
Status: Prepping for the last time....
Joined: 28 May 2010
Posts: 200
Location: Australia
Concentration: Technology, Strategy
GMAT 1: 630 Q47 V29
GPA: 3.2
Followers: 0

Kudos [?]: 28 [0], given: 21

### Show Tags

14 Sep 2011, 03:24
E is the asnwer. But it took me 3.5 minutes to answer...
_________________

Two great challenges: 1. Guts to Fail and 2. Fear to Succeed

Manager
Joined: 10 Jul 2011
Posts: 115
GMAT 1: 700 Q50 V34
GMAT 2: 710 Q50 V35
Followers: 3

Kudos [?]: 21 [0], given: 10

### Show Tags

12 Oct 2011, 11:02
Can somebody please explain me the reason for eliminating C.

Manager
Joined: 14 Feb 2011
Posts: 69
Followers: 1

Kudos [?]: 1 [0], given: 2

### Show Tags

24 Oct 2011, 12:22
IndianExpress wrote:
Can somebody please explain me the reason for eliminating C.

C is not correct, because it limits all governmental spendings. It is not correct. The argument says that the government should limit this procedure, but not forbid it, because otherwise corporates could feel negative effects.
Retired Moderator
Status: 2000 posts! I don't know whether I should feel great or sad about it! LOL
Joined: 04 Oct 2009
Posts: 1712
Location: Peru
Schools: Harvard, Stanford, Wharton, MIT & HKS (Government)
WE 1: Economic research
WE 2: Banking
WE 3: Government: Foreign Trade and SMEs
Followers: 97

Kudos [?]: 914 [0], given: 109

### Show Tags

24 Oct 2011, 17:30
+1 E
_________________

"Life’s battle doesn’t always go to stronger or faster men; but sooner or later the man who wins is the one who thinks he can."

My Integrated Reasoning Logbook / Diary: http://gmatclub.com/forum/my-ir-logbook-diary-133264.html

GMAT Club Premium Membership - big benefits and savings

Senior Manager
Status: MBAing!!!!
Joined: 24 Jun 2011
Posts: 311
Location: United States (FL)
Concentration: Finance, Real Estate
GPA: 3.65
WE: Project Management (Real Estate)
Followers: 6

Kudos [?]: 52 [0], given: 56

### Show Tags

25 Oct 2011, 09:46
I picked E...kind of weird answers to choose from.
GMAT Club Legend
Joined: 01 Oct 2013
Posts: 10534
Followers: 919

Kudos [?]: 203 [0], given: 0

Re: Conventional wisdom holds that increasing government [#permalink]

### Show Tags

01 Dec 2014, 05:48
Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

Want to see all other topics I dig out? Follow me (click follow button on profile). You will receive a summary of all topics I bump in your profile area as well as via email.
Re: Conventional wisdom holds that increasing government   [#permalink] 01 Dec 2014, 05:48
Similar topics Replies Last post
Similar
Topics:
3 Conventional wisdom suggests vaccinating elderly people first in flu s 6 06 Jul 2016, 15:40
Government funding for the arts must be increased if we 6 22 Nov 2012, 21:36
15 Two years ago, the government of Runagia increased by 20 5 25 Jul 2012, 23:31
4 No senator spoke at the convention unless he or she was a 12 16 Mar 2011, 23:11
If the government increases its funding for civilian 6 07 Jun 2009, 03:00
Display posts from previous: Sort by