Just came across this question on one of the Kaplan
CAT exams. I too think that this question and the official answer are wrong.
First, "municipal" is an adjective, the noun form is "municipality" or "municipal body".
Second, I think citing the use of the past perfect in periodicals too justify a GMAT question is incorrect because we all know that getting a GMAT SC question right often calls for an understanding of what the GMAT considers to be "right". In my opinion, the GMAT considers the use of the past perfect wordy/unnecessary unless it is absolutely necessary to show the sequence of two past events. The best explanation of the use of the past perfect (other than the OG itself) is given in MGMAT's SC
book, which clearly explains that in circumstances where the sequence of two events is obvious the past perfect is unnecessary.
Third, I've never come across a single official GMAT SC question that required you to infer that 'X' is to be read as 'Y' (I'm referring to the part where "within twenty years" is to be understood as "before twenty years had passed")
Finally, the way I read it, there are two clauses, each with a subject and verb, joined by a conjunction 'yet' - "San Franciscans mocked" & "powerful municipal made". I think if the past perfect had to be used it would be more appropriate to use it in the first (non-underlined) part: "San Franciscans of the 1890s HAD mocked the claim.....powerful municipal made this boast a...." because these are the two events that are being discussed here. In the phrase 'within twenty years' the word 'within' clearly indicates that the event happened before twenty years expired so the sequence is obvious and there is no scope for misinterpretation. Therefore, the past perfect need not be used.
Again, this is just my opinion on the question. I'm no GMAT Whiz
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