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Is it possible to decrease inflation without causing a recession and i

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Is it possible to decrease inflation without causing a recession and i [#permalink] New post   Updated on: 20 Apr 2021, 08:50
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Is it possible to decrease inflation without causing a recession and its concomitant increase in unemployment? The orthodox answer is “no.” whether they support the “inertia” theory of inflation (that today’s inflation rate is caused by yesterday’s inflation, the state of the economic cycle, and external influences such as import prices) or the “rational expectations” theory (that inflation is caused by workers’ and employers’ expectations, coupled with a lack of credible monetary and fiscal policies), most economists agree that tight monetary and fiscal policies, which cause recessions, are necessary to decelerate inflation. They point out that in the 1980’s, many European countries and the United States conquered high (by these countries’ standards) inflation, but only by applying tight monetary and fiscal policies that sharply increased unemployment. Nevertheless, some governments’ policymakers insist that direct controls on wages and prices, without tight monetary and fiscal policies, can succeed in decreasing inflation. Unfortunately, because this approach fails to deal with the underlying causes of inflation, wage and price controls eventually collapse, the hitherto-repressed inflation resurfaces, and in the meantime, though the policymakers succeed in avoiding a recession, a frozen structure of relative prices imposes distortions that do damage to the economy’s prospects for long-term growth.

1. The passage suggests that the high inflation in the United States and many European countries in the 1980’s differed from inflation elsewhere in which of the following ways?

(A) It fit the rational expectations theory of inflation but not the inertia theory of inflation.
(B) It was possible to control without causing a recession.
(C) It was easier to control in those countries by applying tight monetary and fiscal policies than it would have been elsewhere.
(D) It was not caused by workers’ and employers’ expectations.
(E) It would not necessarily be considered high elsewhere.


2. Which of the following, if true, would most strengthen the author’s conclusion about the use of wage and price controls?

(A) Countries that repeatedly use wage and price controls tend to have lower long-term economic growth rates than do other countries.
(B) Countries that have extremely high inflation frequently place very stringent controls on wages and prices in an attempt to decrease the inflation.
(C) Some countries have found that the use of wage and price controls succeeds in decreasing inflation but also causes a recession.
(D) Policymakers who advocate the use of wage and price controls believe that these controls will deal with the underlying causes of inflation.
(E) Policymakers who advocate the use of wage and price controls are usually more concerned about long-term economic goals than about short-term economic goals.


3. The primary purpose of the passage is to

(A) apply two conventional theories.
(B) examine a generally accepted position
(C) support a controversial policy
(D) explain the underlying causes of a phenomenon
(E) propose an innovative solution

ShowHide Answer Question #1
Official Answer
E
ShowHide Answer Question #2
Official Answer
A
ShowHide Answer Question #3
Official Answer
B

Originally posted by anilnandyala on 03 Jan 2011, 01:50.
Last edited by bM22 on 20 Apr 2021, 08:50, edited 2 times in total.
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   16 Dec 2013, 08:10
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Please find my answer explanations below:

1. Conclusion - The author thinks that wage and price controls damage economy's prospects for long-term growth.
A - Correct (Seems best of all)
B - Irrelevant to the conclusion
C - Weakens, as the author says it helps to avoid recession
D - Weaken, as the author says they do not deal with underlying causes of inflation
E - Weaken, because if the policy makers thought about long term economic goals, they would have not used wage and price controls.

2. "They point out that in the 1980's, many European countries and the United States conquered high (by these countries' standards)"
A - Incorrect
B - Incorrect
C - Incorrect
D - Incorrect
E - Correct

3. The primary purpose of the passage is to

Main Idea (1st two lines):
It is actually not possible to decrease inflation without causing a recession and a corresponding increase in unemployment
Some keywords which point this out: Orthodox, most economists

Mapping:
Majority agree that tight monetary and fiscal policies reqd --> to reduce Inflation
(they might be supporting I-Theory or R-Theory BUT in the end agree on the above point)

US/Europe example provided to strengthen the above.

Some say that controls on wages and prices can decrease inflation without causing a recession (and dont support tight monetary and fiscal policies) --> This approach fails due to the reasons provided in the last line.

A - apply two conventional theories.
Although 2 theories are mentioned (Inertia, Rational), they are not main point of the entire passage. The author only uses these theory to say something about the economists (economist support either of the two viewpoints)
B - examine a generally accepted position
This is not directly stated but if you consider the Big Picture this is indeed the answer. The word orthodox (conventional, generally accepted beliefs) signals this.
C - support a controversial policy
The author mentions a policy to which most economist agree (1st half), so there is no controversy as such
D - explain the underlying causes of a phenomenon
The author is not giving his viewpoints and justifying/detailing them. He is just presenting some facts and viewpoints of the economists.
E - propose an innovative solution
There is no innovation as such.
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   03 Jul 2017, 15:17
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1)E) It would not necessarily be considered high elsewhere.
>>They point out that in the 1980’s, many European countries and the United States conquered high (by these countries’ standards) inflation, but only by applying tight monetary and fiscal policies that sharply increased unemployment.
2)>>Unfortunately, because this approach fails to deal with the underlying causes of inflation, wage and price controls eventually collapse, the hitherto-repressed inflation resurfaces, and in the meantime, though the policymakers succeed in avoiding a recession, a frozen structure of relative prices imposes distortions that do damage to the economy’s prospects for long-term growth.
(A) strengthens this by giving evidence that, in fact, countries that have used wage and price inflation in the past have experienced problems with long-term growth.
3)Focus on portions that express an OPINION.
Is it possible to decrease inflation without causing a recession and its concomitant increase in unemployment?
THE ORTHODOX ANSWER is "no."
MOST ECONOMISTS AGREE that tight monetary and fiscal policies, which cause recessions, are necessary to
decelerate inflation.
THEY POINT OUT that many European countries and the United States conquered inflation by applying policies that sharply increased unemployment.
Nevertheless, POLICYMAKERS INSIST that direct controls can succeed in decreasing inflation.
Unfortunately, because THIS APPROACH FAILS TO DEAL with the underlying causes of inflation, a frozen structure imposes distortions that do damage to the economy's prospects for longterm growth.
The portions above all serve to assess the ORTHODOX view that it is not possible to decrease inflation without causing a recession.
Thus, the correct answer is B:
The primary purpose is to examine a generally accepted position.
The correct answer is B.
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   04 Jan 2011, 14:30
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2) European countries and the United States conquered high (by these countries’ standards) inflation, but only by applying tight monetary and fiscal policies that sharply increased
unemployment.
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   10 Jan 2011, 16:14
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The author's "conclusion about the use of wage and price controls" is that they don't really work and cause serious damage: "wage and price controls eventually
collapse, the hitherto-repressed inflation resurfaces, and in the meantime,
... a frozen structure of
relative prices imposes distortions that do damage to the economy’s prospects
for long-term growth."

(A) strengthens this by giving evidence that, in fact, countries that have used wage and price inflation in the past have experienced problems with long-term growth.

(D) concurs with the author's initial evidence, that wage and price controls are intended to deal with inflation, but ignores the conclusion, namely that, according to this author, they fail to successfully do so.
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   27 May 2013, 09:36
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Hi,

It is E because of this phrase:

by these countries’ standards

This is pretty conclusive.

I agree that there is some temptation over E. As the passage never explicitly states that USA/Europe went into recession. However it does imply that they dented their inflation by employing policies that cause recessions. So this is less clear than B and so not correct.

Does that make sense?

James
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   13 Jan 2014, 02:31
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Hi,

Please read RC forum rules before posting...

rc-forum-rules-please-read-155874.html
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   22 Jun 2015, 08:11
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Time taken:7:17 mins..

Which of the following, if true, would most strengthen the author’s conclusion about the use of wage and price controls?
A) Countries that repeatedly use wage and price controls tend to have lower long-term economic growth rates than do other countries.
>>Unfortunately, because this approach fails to deal with the underlying causes of inflation, wage and price controls eventually collapse, the hitherto-repressed inflation resurfaces, and in the meantime, though the policymakers succeed in avoiding a recession, a frozen structure of relative prices imposes distortions that do damage to the economy’s prospects for long-term growth.
B) Countries that have extremely high inflation frequently place very stringent controls on wages and prices in an attempt to decrease the inflation.
C) Some countries have found that the use of wage and price controls succeeds in decreasing inflation but also causes a recession.
D) Policymakers who advocate the use of wage and price controls believe that these controls will deal with the underlying causes of inflation.
E) Policymakers who advocate the use of wage and price controls are usually more concerned about long-term economic goals than about short-term economic goals.

The passage suggests that the high inflation in the United States and many European countries in the 1980’s differed from inflation elsewhere in which of the following ways?
A) It fit the rational expectations theory of inflation but not the inertia theory of inflation.
B) It was possible to control without causing a recession.
C) It was easier to control in those countries by applying tight monetary and fiscal policies than it would have been elsewhere.
D) It was not caused by workers’ and employers’ expectations.
E) It would not necessarily be considered high elsewhere.
>>They point out that in the 1980’s, many European countries and the United States conquered high (by these countries’ standards) inflation, but only by applying tight monetary and fiscal policies that sharply increased unemployment.

The primary purpose of the passage is to
A) apply two conventional theories.
B) examine a generally accepted position
C) support a controversial policy
D) explain the underlying causes of a phenomenon
E) propose an innovative solution
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   03 Dec 2016, 09:02
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The reason why Q2 is E is as follows:
"...conquered high (by these countries' standards) inflation..." means that USA and Europe had high inflation according to their own standard. The primary reason why the comment in the parenthesis is mentioned is to compare the rates with those of other countries, where inflation rates maybe so high that these other countries don't find USA's and Europe's rate to be that high.

By USA's and Europe's own standards, the inflation maybe high, but by others' standard, it might be low. That's the only logical explanation for having the comment in the parenthesis included in the passage in the first place.

Hope it helps
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   16 Dec 2016, 01:49
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dear experts,
I am really confused this question.

Which of the following, if true, would most strengthen the author’s conclusion about the use of wage and price controls?
A) Countries that repeatedly use wage and price controls tend to have lower long-term economic growth rates than do other countries.

for the passage,
here is a causal relationship
Cause : fails to deal with the underlying causes
results :
1/ wage and price controls collapse
2/ the inflation resurfaces
3/ damage long term growth

see, 1/ and 3 are both effects,

while, A, Countries that repeatedly use wage and price controls tend to have lower long-term economic growth rates than do other countries, states a casual relationship that use wage and price controls tend to lower long term growth.
IMO, A makes use wage and price controls to be a cause, and lower long term growth to be an effect.

that's why I cross off A

A does make me a lot of confused.

genuinely want your clarification

have a nice day
>_~
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   18 Jan 2017, 13:50
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Here is my take on this:
The author's conclusion is this here: "Unfortunately, because this approach fails to deal with the underlying causes of inflation, wage and price controls eventually collapse, the hitherto-repressed inflation resurfaces, and in the meantime, though the policymakers succeed in avoiding a recession, a frozen structure of relative prices imposes distortions that do damage to the economy’s prospects for long-term growth."

The question asks which of the following if true, would most strengthen the author’s conclusion.
(A) Countries repeatedly use wage and price controls tend to have long-term economic growth rates than do other countries.
So basically this statement just confirmed the author’s conclusion and therefore strengthens it if it is true.

To be honest, I still don't get question #2 and # 3 for this passage. Does someone want to explain in more detail?
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   26 Aug 2017, 08:27
plumber250 wrote:
Hi,

It is E because of this phrase:

by these countries’ standards

This is pretty conclusive.

I agree that there is some temptation over E. As the passage never explicitly states that USA/Europe went into recession. However it does imply that they dented their inflation by employing policies that cause recessions. So this is less clear than B and so not correct.

Does that make sense?

James


Experts -- how tough is this passage ? i could not understand the passage map, where this was going ...

Is the passage complicated in your opinion ..

As a native speaker, i still could not understand the main point of this w/o reading it a couple of times (took me 6 mins just to understand this passage :( )

please confirm technical level of passage and/or how to read passages like this better ?
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   15 Oct 2017, 04:10
anilnandyala wrote:
Is it possible to decrease inflation without causing a recession and its concomitant increase in unemployment? The orthodox answer is “no.” whether they support the “inertia” theory of inflation (that today’s inflation rate is caused by yesterday’s inflation, the state of the economic cycle, and external influences such as import prices) or the “rational expectations” theory (that inflation is caused by workers’ and employers’ expectations, coupled with a lack of credible monetary and fiscal policies), most economists agree that tight monetary and fiscal policies, which cause recessions, are necessary to decelerate inflation. They point out that in the 1980’s, many European countries and the United States conquered high (by these countries’ standards) inflation, but only by applying tight monetary and fiscal policies that sharply increased unemployment. Nevertheless, some governments’ policymakers insist that direct controls on wages and prices, without tight monetary and fiscal policies, can succeed in decreasing inflation. Unfortunately, because this approach fails to deal with the underlying causes of inflation, wage and price controls eventually collapse, the hitherto-repressed inflation resurfaces, and in the meantime, though the policymakers succeed in avoiding a recession, a frozen structure of relative prices imposes distortions that do damage to the economy’s prospects for long-term growth.
1. The passage suggests that the high inflation in the United States and many European countries in the 1980’s differed from inflation elsewhere in which of the following ways?

(A) It fit the rational expectations theory of inflation but not the inertia theory of inflation.
(B) It was possible to control without causing a recession.
(C) It was easier to control in those countries by applying tight monetary and fiscal policies than it would have been elsewhere.
(D) It was not caused by workers’ and employers’ expectations.
(E) It would not necessarily be considered high elsewhere.

2. Which of the following, if true, would most strengthen the author’s conclusion about the use of wage and price controls?

(A) Countries that repeatedly use wage and price controls tend to have lower long-term economic growth rates than do other countries.
(B) Countries that have extremely high inflation frequently place very stringent controls on wages and prices in an attempt to decrease the inflation.
(C) Some countries have found that the use of wage and price controls succeeds in decreasing inflation but also causes a recession.
(D) Policymakers who advocate the use of wage and price controls believe that these controls will deal with the underlying causes of inflation.
(E) Policymakers who advocate the use of wage and price controls are usually more concerned about long-term economic goals than about short-term economic goals.

3. The primary purpose of the passage is to

(A) apply two conventional theories.
(B) examine a generally accepted position
(C) support a controversial policy
(D) explain the underlying causes of a phenomenon
(E) propose an innovative solution



Source: GMATPREP Default Exam Pack


Question 1
This is clearly infer-able from the second set of parentheses.

Question 2
"C' is the trap answer. C presents a fact that would make the use of wage and price control unappealing in general but the passage explicitly states a drawback of tight wage and control policies. A gives information that supports that premise and therefore adds validity to that claim.

Question 3

While A seems tempting, what this passage is really structured to do is thoroughly analyze or "examine" that "orthodox" position. It's basically saying here's why the traditional answer is "no."
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   06 Apr 2018, 00:00
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Taming the beast.



The Economist (London, England), Saturday, November 15, 1986; pg. 57; Issue 7472. (5351 words)
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   02 Nov 2018, 08:28
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Wow.!!
A tough passage.
Took 6:30 mins.
Got 2/3 right.
Got first one wrong. I generally avoid points written in brackets as they don't contribute much to the overall message of the passage but in this case "(by these countries’ standards)" was the key. Missed that totally.!!
Lesson learnt.!!
I think it is 700-750 passage.
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   17 Mar 2019, 12:40
Would you please explain why B is the correct answer instead of C in question 3(primary purpose)?
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   28 Mar 2019, 02:18
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patto wrote:
Would you please explain why B is the correct answer instead of C in question 3(primary purpose)?

Let's break down the passage to understand its primary purpose:

  • First, the author poses a question: "Is it possible to decrease inflation without causing a recession and... [an] increase in unemployment?
  • Then, the author gives the orthodox answer ("no,"), two theories behind this answer, and an example to support this assertion (US and Europe in the 1980's).
  • The author presents a policy that seeks to disprove the "orthodox answer": "direct controls on wages and prices, without tight monetary and fiscal policies, can succeed in decreasing inflation"
  • Finally, the author presents several negative consequences of enacting the policy above.

Now, take a look at (C):
Quote:
(C) support a controversial policy

You could argue that the "controversial policy" referenced here is using "direct controls on wages and prices" to decrease inflation without causing high unemployment (seen above in bullet point #3). The author does introduce this policy, but does not support it -- the last sentence of the passage lists the negative consequences of enacting such a policy in fairly strong terms, and the author does not defend the policy at all. Because of this, (C) cannot be the primary purpose of the passage.

Now look at (B):
Quote:
(B) examine a generally accepted position

Here, the "generally accepted position" is the "orthodox answer" to the author's question: no, it is not possible to decrease inflation without causing a recession and its concomitant increase in unemployment.

The author examines this position by explaining two theories behind it, presenting a policy that seeks to disprove it, and then listing the negative consequences of this policy. The overall purpose of the passage is to explore various aspects of the "orthodox answer" to the author's question, which is nicely captured in this answer choice. (B) is the correct answer to question #3.

I hope that helps!
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   07 Jul 2019, 22:13
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HI GMATNinja, mikemcgarry, DmitryFarber, MagooshExpert (Carolyn), ccooley, GMATGuruNY, AjiteshArun EMPOWERgmatVerbal, generis, jennpt, VeritasPrepErika, MartyTargetTestPrep

Can you please help me with the below question.

Quote:
They point out that in the 1980???s, many European countries and the United States conquered high (by these countries??? standards) inflation, but only by applying tight monetary and fiscal policies that sharply increased unemployment.


1. The passage suggests that the high inflation in the United States and many European countries in the 1980???s differed from inflation elsewhere in which of the following ways?

(A) It fit the rational expectations theory of inflation but not the inertia theory of inflation.
(B) It was possible to control without causing a recession.
(C) It was easier to control in those countries by applying tight monetary and fiscal policies than it would have been elsewhere.
(D) It was not caused by workers??? and employers??? expectations.
(E) It would not necessarily be considered high elsewhere.
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   12 Jul 2019, 11:08
Can someone please explain all the answer choices for Q2 - The passage suggests that the high inflation in the United States and many European countries in the 1980's differed from inflation elsewhere in which of the following ways?

It fit the rational expectations theory of inflation but not the inertia theory of inflation.

It was possible to control without causing a recession.

It was easier to control in those countries by applying tight monetary and fiscal policies than it would have been elsewhere.

It was not caused by workers' and employers' expectations.

It would not necessarily be considered high elsewhere.
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink] New post   17 Jul 2019, 15:44
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NandishSS wrote:
HI GMATNinja, mikemcgarry, DmitryFarber, MagooshExpert (Carolyn), ccooley, GMATGuruNY, AjiteshArun EMPOWERgmatVerbal, generis, jennpt, VeritasPrepErika, MartyTargetTestPrep

Can you please help me with the below question.

Quote:
They point out that in the 1980???s, many European countries and the United States conquered high (by these countries??? standards) inflation, but only by applying tight monetary and fiscal policies that sharply increased unemployment.


1. The passage suggests that the high inflation in the United States and many European countries in the 1980???s differed from inflation elsewhere in which of the following ways?

(A) It fit the rational expectations theory of inflation but not the inertia theory of inflation.
(B) It was possible to control without causing a recession.
(C) It was easier to control in those countries by applying tight monetary and fiscal policies than it would have been elsewhere.
(D) It was not caused by workers??? and employers??? expectations.
(E) It would not necessarily be considered high elsewhere.

Here is the most relevant sentence of the passage:
Quote:
In the 1980’s, many European countries and the United States conquered high (by these countries’ standards) inflation, but only by applying tight monetary and fiscal policies that sharply increased unemployment.

This tells us that "many European countries and the United States" applied certain policies and conquered high inflation in the 1980's. However, it doesn't suggest that these countries DIFFERED from other countries by applying these policies or beating high inflation. Perhaps many other countries also conquered high inflation -- there is nothing in the passage to suggest that the US/European countries were unique in this way.

The only piece of the sentence that suggests a difference between the US/European countries and other countries is the bit inside the parentheses -- "high (by these countries' standards) inflation." Here, the author implies that what the US/European countries consider to be high inflation differs from that classification in other countries. Because this is the only way that the author explicitly differentiates between the US/European countries and other countries, we are looking for an answer choice that focuses on this exact point.

Quote:
(E) [High inflation in the US/many European countries] would not necessarily be considered high elsewhere

(E) aligns nicely with our analysis -- the author suggests that what the US/European countries have different standards of what they consider to be high inflation.

(E) is the correct answer choice for question #1.

kanikab wrote:
Can someone please explain all the answer choices for Q2 - The passage suggests that the high inflation in the United States and many European countries in the 1980's differed from inflation elsewhere in which of the following ways?

That is actually question #1 (see above for an explanation). If you have specific questions about #2, let us know?

I hope that helps!
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Re: Is it possible to decrease inflation without causing a recession and i [#permalink]
17 Jul 2019, 15:44
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