12 Days of Christmas GMAT Competition 2025 - Day 10: Economist: In

A. This reinforces that previously also it took sometime to see impacts of the hikes. hence it strengthens
B. unrelated to consumer demand
C. it is not concerned with customers actually understanding the effect
D. we are concenrecc about the price chnages related to consumer demand
E. we are concerneed about only country X

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27 Dec 2025, 01:26

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A. Yes, this shows that the effect takes time. If it took 18 months for a case when the savings were low, then now it would take even more time.
B. We don't worry about this, as it is unrelated to consumer demand.
C. Sure, but doesn't add much to the argument whether the interest rates will have the intended effect or not.
D. This might even slightly weaken by saying that prices are changing from wage pressure rather than demand, then the rates may not have an effect at all.
E. This information is not relevant here.

Option A

Bunuel

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27 Dec 2025, 02:28

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So, once the excess cash reserve of these people depletes -----> the already high interest rate will have the effect it's intended to do

Now that we know the most important part of the argument, we should focus on strengthening this link.

Bunuel

A. Well, this may sound indirect but actually, according to what the economist predicted, the intended effect did happen in 18 months for the people with low cash reserves. We can conclude that the same effect WILL happend for people with unusually high cash reserves, but we don't know the exact timeline for it. [HOLD]

B. Irrelevant, the sectors are anyway unrelated to consumer demand

C. Regardless of whether they understand or not. The interest rate should have taken the intended effect. Out of context.

D. Irrelevant

E. This is a weakener.

Therefore, with process of elimination, we will go for option A because in terms of the context of the argument, this is the most plausible one.
Hope this helps,
Thanks

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27 Dec 2025, 03:10

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Bunuel

Stimulus :

Premise : As consumer have high saving, higher interest rate takes time to reflect change.

Claim : Once savings get depleted, interest rates will begin to show it's effects.

Options:

A : Great, this shows that it takes time to show it's effect --- Hold

B : This is weakener, it shows that demand have no effect --- Incorrect

C : Irrelevant --- Incorrect

D : This options weakens the argument as it shows that demand is not the reason --- Incorrect

E : Irrelevant, other country scenario is not our concern --- Incorrect

Ans - A

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27 Dec 2025, 03:30

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Economist's Arguments:
Raising interest rates still affects inflation -> disagree with policymakers who argue raising rates has no effect

Why?
Factor of consumer high vs low cash reserves

Inflation remains high despite multiple rate hikes, not because of ineffective interest rate intervention,
but because of the consumer's cash reserves factor. In prior cycles, where 'intervention' has no effect, the consumer has high cash reserves;
Once these reserves are lower, interest rates might impact the inflation

Unstated assumption:
correlation between consumer cash reserves ~ inflation

rhe argument that strengthen the conclusion is A. Interest rate hikes, household savings were low

Why are others incorrect?
B. Not argue about sectors
C. not argue on consumers' understanding
D. not argue in business response to wage pressures
E. not argue about other countries' central banks

Bunuel

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27 Dec 2025, 03:31

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A. If it takes 18 months for inflation to be impacted then for country X it is indeed premature to conclude the hikes are not working especially when you consider the fact that the citizens had more savings hence Correct.
B. Positive signs in areas unaffected by inflation do not communicate anything useful
C. This does not support the idea that the hikes will eventually work. In fact it negates that prediction
D. If inflation is driven by wages then this plan not actually work so it weakens the argument
E. Similar problems elsewhere does not support the economist argument, in fact it weakens it by showing evidence that this has not worked elsewhere
Ans A

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27 Dec 2025, 03:47

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Like most complex business passages, there is no better approach than to express things in the simplest terms.

Here, an economist highlights:

- Inflation is too high: a cause for concern.
- Central banks have stepped in.
- These banks have raised interest rates massively.
- This increase in interest will directly make things more expensive for people.
- As expensive things will make it harder for people to afford buying, people will not buy or buy less.
- With less buying from people, the increase in inflation - which happens when more things are bought than sold, thus increasing prices - will be curbed.

However, the economist continues, hasn't had the intended effects:
- Country X's inflation is still high, despite these interest hikes.
- Multiple such hikes have happened, but still inflation remains high.

And policymakers, the economist says, highlight:

- Increasing interest more will not be helpful in curbing inflation; this policymakers' conclusion may be based on how the hikes haven't had the intended effects.

But the economist disagrees, because:
- This conclusion is too premature.
- Why? because people have had more money to spend recently, which, naturally, implies that an increase in interest rates will not impact them.
- Fiscal stimulus programs are why people have more money to spend now.
- But the impact of these programs will die down - people's excess savings will deplete - and the heightened interest rates will impact what people can spend, causing them to spend less, and causing inflation to fall.

We now understand things quite clearly. And we need to find a strengthener for the economist's argument - something that showcases that the hiked interest rates will eventually bear fruit; people will spend less; inflation will go down.

We look at the options for that:

A. "Previously, interest rate hikes took 18 months to impact inflation, especially in countries where savings were low"

Now, without the "savings were low" part, this would've been a solid strengthener. But this just means, now, that the intended effect applied more to a different kind of economy - not ours, which actually has people with high household savings.

B. "Country X's industries where people can't really lower their spendings - like power and essential products - have seen inflation reduce."

This gives reasons for why inflation could be going down - because no matter what, people will need these essentials. However, we know that the overall inflation is high / hasn't gone down, so this effect is negligible, and specific to a market that isn't relevant to the argument.

C. "People don't know how interest changes impact their expenses"

People knowing or not knowing has no bearing on the result. If interest increases and people see rate hikes around them, then they will instantly face the impact. Irrelevant.

D. "Businesses have upped their prices, as wages are increasing - not demand"

This proves that products aren't getting more expensive because of the hikes, but rather, because of an increase in people's wages. Also, any increase in wages will offset the negative effects of prices increasing anyway, so this can be eliminated.

E. "Central banks in countries without stimulus programs have struggled to bring down inflation through interest rate hikes"

At first glance, they may seem like a weakener, as countries without people becoming more cash-rich due to fiscal programs, have struggled to bring down inflation - and the economist argues that this excess cash has caused the inflation to not come down, as people's spendings haven't come down. However, this has a slightly more indirect implication: These other countries, where people are low on cash, are unlikely to have enough cash to have spent enough to impact inflation in the first place. So, a further rise in hikes would've only made the "unaffording" unafford more, if I may put it like that. For people with the disposable income to actually be impacted with an increase in interests - as the people of the country in question are - they need to have the money in the first place, which they do because of the fiscal programs.

Bunuel

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27 Dec 2025, 03:50

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A - This would be a weakened. If previous instances show some time lag between rate increase and effect, then there is no point in increasing rates further, but to wait for the effect to kick in.

B - This is a nice strengthener. It gives more credence to the fact that inflation has already moderated and the plan is working in sectors unrelated to consumer demand. Sectors related to consumer demand will show moderation once the cash surpluses deplete.

C - Consumer awareness of link between inflation and interest rates does not affect the argument in any way.

D - This is a weakener. If inflation is not due to consumer demand, but due to supply side pressure, then increasing interest rates will not affect consumer demand

E - This is also a weakener as it may convey that cash surplus may not be the reason for the current trend observed in Country X.

Therefore, Option B imo

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27 Dec 2025, 04:01

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A - Correct option
B - Out of Scope
C - Out of scope
D - Out of scope
E - Out of scope

Bunuel

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27 Dec 2025, 04:19

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Core argument says that the rate hikes are meant to reduce consumer demand. In Country X, inflation is still high. Economist says this may be temporary because consumers have extra savings. Once savings run out, existing high rates will start working. So we want a choice that shows that rate hikes can take time to work, especially when savings delay their impact.

Evaluating the choices quickly
A. Rate hikes took up to 18 months to affect inflation, especially when savings were low. (Seems correct)
Shows that monetary policy works with a lag. This supports the pre-conclusion.
B. Inflation falling in non-demand sectors. (Seems incorrect)
Irrelevant to consumer-demand argument.
C. Consumers don’t understand interest rates. (Seems Incorrect)
Does not explain delayed impact.
D. Inflation driven by wages, not demand. (Seems Incorrect) This weakens the economist’s argument.
E. Other countries also struggling. (Seems Incorrect) It doesn’t explain why Country X will improve later.

IMO Answer is A.

Bunuel

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27 Dec 2025, 04:29

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Bunuel

In country X, there is a prolonged inflationary period (price rise) , so several banks have raised the interest rates, so that the people rather than holding funds at hand will park the funds at banks, so they get benefitted out of these interest rates. On the other hand, these interest rate hikes, might lessen the amount of disposable income at hand, so lesser spending, lesser demand. So, eventually pulling the price pressure down.

This is the usual scenario expected to occur, when the interest rates are pegged up. But, Country X faces a different scenario. Core inflation is extremely high, despite the interest rates hike. So, analysing the trend, the policy makers are now voicing out the opinion that, raising interest rates are not going to benefit anymore.

The author mentions, the policy makers are too fast to conclude on this, mentioning it to be premature.

Previously, this interest rates hike has resulted in a positive effect. But, Due to fiscal stimulus programs, more cash was pumped into the citizens hands. So, the interest rate hike is not sufficient to suck the money out into the banks. So, as the excess funds becomes depleted, the interest rates hike might have a positive impact on the inflation rates.

We need to find an option which strengthens:

A) This option brings a historical factual data, that in economies where the household savings were low, the interest rate hike took almost 18 most to impact the inflationary pressures. So, if it takes 18 months with low savings to make interest rates an impact on inflation. Then, with post fiscal stimulus, the interest rate hike might take a much longer time period to bring inflation down. Since, we don’t see an effect doesn’t mean it’s not functioning. Hence, correct.

B) Inflation in general is viewed from sector perspective in this option. Thus, because some sectors have shown moderation doesn’t mean they resonate with the general inflationary trend of the country. Hence, wrong.

C) We don’t need all consumers to be economic experts. This option mixes the lack of economic knowledge among masses , the reason behind more spending, and more demand, leading to inflation. This, might be a micro aspect of the larger picture. Not the major contributor. Hence, Wrong.

D) To compensate for the wage expenses, businesses have increased the prices. This increase will not break till the price is within the limits of disposable income at hand. Any thing, exceeding it, might make this link break. Moreover, this contradicts the influence of fiscal stimulus. Hence, wrong.

E) This option compares two different countries, while the issue is pertaining to a single country, its fiscal stimulus, interest rate hike and inflationary pressures. No two countries will have the economics, demands or product preferences. Irrelevant comparison, hence Wrong.

Option A

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27 Dec 2025, 04:40

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Which of the following, if true, most strengthens the economist’s argument?

A. In previous decades, interest rate hikes took up to 18 months to fully impact inflation, particularly in economies where household savings were low.(This option makes the policymakers conclusion that rate hikes won’t work look weak. If the rate hikes historically take a long time to work even when household savings are low, then it is even more possible that in Country X where the savings are very high the effects are simply delayed and not completely absent. This reinforces the economists explanation for why inflation remains high for now) Correct

B. Inflation in Country X has recently shown signs of moderating in sectors unrelated to consumer demand, such as energy and commodities.(This option doesn’t support the claim about interest rates) Wrong

C. Surveys indicate that many consumers in Country X do not fully understand how interest rate changes affect their day-to-day expenses.(This option doesn't explain why the inflation will fall later) Wrong

D. Businesses in Country X have begun raising prices primarily in response to wage pressures rather than increased demand.(This option suggests that inflation is driven by wage pressures rather than demand which actually undermines the economist argument) Wrong

E. Central banks in countries without recent stimulus programs have also struggled to bring down inflation through interest rate increases.(This option shows rate hikes failing elsewhere) Wrong

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27 Dec 2025, 05:54

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The main conclusion of the argument is "But that conclusion may be premature". Reasoning provided is that this cycle consists of fiscal stimulus that leads to unusual high cash reserves. Once those cash reserves depleted , current interest rates may begin to exert a stronger downward influence on inflation. Now Let's check options:

(A) It's correct. It says in historical data , it took almost 18 months to see the full effect. And from the argument we know that fiscal stimulus was not present earlier. So This time we should wait atleast 18 months to see the effect. It's pre mature to say anything before that. Additionally fiscal stimulus effect can make it even longer.
(B) It's incorrect , Consumer demand is not focussed.
(C)It's incorrect, it shows the plausibility behind stubborn high inflation. It's not strengthening the economist's argument.
(D) Irrelevant and not finding any connection. This shows just demand is not primary factor for businesses to raise prices.
(E) It's weakening the argument. Hence it's incorrect.

So final answer is A.

Bunuel

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27 Dec 2025, 05:59

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A is the correct answer i feel, it helps strengthen that even where the household savings were less ie no cash reserves it took time to recover from inflation. Hence this course of action is perfectly okay

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27 Dec 2025, 06:01

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To strengthen the author's conclusion, we need to find evidence that supports the idea that the linkage b/w interest rate and inflation is still valid.

A. Incorrect. This option suggests that in the past when savings were low, the delay was long. This will actually weaken the conclusion.

B. This is a strong one. The economist's argument is that the problem is specifically with consumer demand. If inflation is already falling in areas unrelated to consumer demand, it increases our belief that the increased rates are working where they're able to.

C. Incorrect. The mechanism of rate hikes doesn't depend on consumers understanding.

D. Incorrect. This choice suggests the problem is actually on the supply side, however, the entire premise is that the problem is on the demand side.

E. Incorrect. This choice actually weakens the conclusion by stating that other countries without stimulus programs are having exact problems.

Option B

Bunuel