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# American economists continually attempt to gauge the health

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American economists continually attempt to gauge the health  [#permalink]

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04 Jun 2013, 15:50
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American economists continually attempt to gauge the health of the economy, both for the gain of the private sector as well as for the global standing of the United States. Different elements of the economy react differently to changes in prosperity. Some elements rise and fall as the economy waxes and wanes. These are known as coincident indicators. Other elements are known as leading indicators and usually show a downturn before the economy does. A third group of elements are known as lagging indicators and lose vigor only after the economy has already begun to slow. Economists can predict the direction of the economy by monitoring these indicators.

Coincident indicators, such as manufacturing and employment rates, are the best gauge of the current state of the economy. A continued shift in these indicators allows economists to determine whether the economy itself is in the process of an upturn or a downturn. These indicators coincide with shifts in the economy because they are dependent on sustained prosperity. But since coincident indicators reflect only the current state of the economy, they are not especially useful in predicting how the economy will perform in the near future. Economists must look to other indicators for that.

The indicators with the greatest predictive power are leading indicators, such as mortgage applications and profit margins. When these indicators rise or fall, economists can often foretell similar changes in the country’s economic health. These indicators do not cause changes in the economy. Rather, they often signal changes in economic behavior that lead to shifts in the economic cycle. By contrast, the third type of indicator – lagging indicators – is useless as a harbinger of change. But these indicators can be helpful in confirming the assessments of economists.

Determining which elements of the economy fall into which category of indicator requires analysis of copious data and an understanding of the factors that propel the economy. One must determine which events surrounding a turn in the business cycle actually contributed to the change. 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 economic growth.
1. The primary purpose of the passage is to
· compare the utility of various economic indicators
· explain the process by which economists draw conclusions about key factors of economic change
· present a conceptual framework used by economists to prescribe economic goals
· trace the development of a set of economic devices
· argue for the continued evaluation of economic factors affecting the business cycle

2. The information in the passage suggests that which of the following would most strongly indicate an imminent change in the business cycle?
· a decrease in the employment rate
· a decrease in the number of new homes built per month
· an increase in the number of new automobiles produced each month
· an increase in the difference between manufacturing costs and retail revenues for large home appliances
· a decrease in the number of corporate bankruptcies per month

3. According to the passage, the main purpose of economic indicators is which of the following?
· to facilitate the analysis necessary to maintain forward economic momentum
· to allow investors to time their investments in sync with economic cycles
· to foster healthy economic competition among various commercial sectors
· to bring to light several key factors in economic downturns
· to promote widespread understanding of economic principles

4. The passage suggests that lagging indicators would be least helpful in determining which of the following?
· whether predictions based on the behavior of the mortgage market were accurate
· whether companies ought to cut costs in order to avoid short-term losses
· whether recent trends in the employment rate were consistent with the overall economic picture
· whether financial analysts are correct in their assessment of recent economic developments
· whether the government was justified in taking action to boost the economy

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Re: American economists continually attempt to gauge the health  [#permalink]

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06 Jun 2013, 03:24
1-C [Author does talks abt the future course of economy is defined based on economic indicators and understanding of the framework. Also, first line of passage says economists guage the health of the economy and 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 economic growth.]. At first, I thought A but came up with a solid reason for C

2- A[Only coz of events surounding the turn contributed to the change.] This is one is disguised and really tough. Total Guess.

3- E[Coz of last line in passage]

4-A[ Lagging indicators cannot predict]

Pls confirm the OA
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Re: American economists continually attempt to gauge the health  [#permalink]

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06 Jun 2013, 04:13
American economists continually attempt to gauge the
health of the economy, both for the gain of the private
sector as well as for the global standing of the United
States. Different elements of the economy react differently
to changes in prosperity. Some elements rise and fall as
the economy waxes and wanes. These are known as
coincident indicators. Other elements are known as
leading indicators and usually show a downturn before
the economy does. A third group of elements are known
as lagging indicators and lose vigor only after the economy
has already begun to slow. Economists can predict the
direction of the economy by monitoring these indicators.

Coincident indicators, such as manufacturing and
employment rates, are the best gauge of the current state
of the economy. A continued shift in these indicators allows
economists to determine whether the economy itself is in
the process of an upturn or a downturn. These indicators
coincide with shifts in the economy because they are
dependent on sustained prosperity. But since coincident
indicators reflect only the current state of the economy,
they are not especially useful in predicting how the
economy will perform in the near future. Economists must
look to other indicators for that.

The indicators with the greatest predictive power are
leading indicators, such as mortgage applications and
profit margins. When these indicators rise or fall,
economists can often foretell similar changes in the
country’s economic health. These indicators do not cause
changes in the economy. Rather, they often signal changes
in economic behavior that lead to shifts in the economic
cycle. By contrast, the third type of indicator – lagging
indicators – is useless as a harbinger of change. But these
indicators can be helpful in confirming the assessments
of economists.

Determining which elements of the economy fall into which
category of indicator requires analysis of copious data
and an understanding of the factors that propel the
economy. One must determine which events surrounding
a turn in the business cycle actually contributed to the
change. 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 economic growth.

1. The primary purpose of the passage is to

· compare the utility of various economic indicators
· explain the process by which economists draw
conclusions about key factors of economic change
· present a conceptual framework used by economists
to prescribe economic goals

· trace the development of a set of economic devices
· argue for the continued evaluation of economic factors

2. The information in the passage suggests that which
of the following would most strongly indicate an
imminent change in the business cycle?

· a decrease in the employment rate
· a decrease in the number of new homes built per
month
· an increase in the number of new automobiles
produced each month
· an increase in the difference between manufacturing
costs and retail revenues for large home appliances
· a decrease in the number of corporate bankruptcies
per month

3. According to the passage, the main purpose of
economic indicators is which of the following?

· to facilitate the analysis necessary to maintain forward
economic momentum

· to allow investors to time their investments in sync
with economic cycles
· to foster healthy economic competition among various
commercial sectors
· to bring to light several key factors in economic
downturns
· to promote widespread understanding of economic
principles

4. The passage suggests that lagging indicators would
be least helpful in determining which of the following?

· whether predictions based on the behavior of the
mortgage market were accurate
· whether companies ought to cut costs in order to
avoid short-term losses
· whether recent trends in the employment rate were
consistent with the overall economic picture

· whether financial analysts are correct in their
assessment of recent economic developments
· whether the government was justified in taking action
to boost the economy
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Joined: 01 Sep 2010
Posts: 3352
Re: American economists continually attempt to gauge the health  [#permalink]

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06 Jun 2013, 04:35
3
1.

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
indicators."

(B) This choice mistakenly focuses on a process that is not discussed in the
passage.

(C) This choice focuses only on a few sentences in the last paragraph of the
passage.

(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
objective comparison.

2.
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
(paragraph 2).

(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
(paragraph 3).

(C) This choice focuses on manufacturing, which is a coincident indicator (paragraph
2).

(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.

3.
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
economic growth."

(A) CORRECT. This choice is consistent with the information contained in the last
paragraph.

(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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Joined: 08 Aug 2013
Posts: 4
Re: American economists continually attempt to gauge the health  [#permalink]

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27 Aug 2013, 14:20
carcass wrote:
1.

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
indicators."

(B) This choice mistakenly focuses on a process that is not discussed in the
passage.

(C) This choice focuses only on a few sentences in the last paragraph of the
passage.

(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
objective comparison.

2.
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
(paragraph 2).

(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
(paragraph 3).

(C) This choice focuses on manufacturing, which is a coincident indicator (paragraph
2).

(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.

3.
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
economic growth."

(A) CORRECT. This choice is consistent with the information contained in the last
paragraph.

(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.

Hi,

For First question I also selected choice C.

As if we see last line of the first paragraph, we can find that economists use these indicators.
Though this line doesn't assure anything.

Regards,
Senior Manager
Joined: 12 Mar 2010
Posts: 275
Concentration: Marketing, Entrepreneurship
GMAT 1: 680 Q49 V34
Re: American economists continually attempt to gauge the health  [#permalink]

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10 Sep 2013, 22:36
For the 2nd question, I assumed that choice B is a mortgage application. Why is it not correct?
Manager
Joined: 15 Aug 2013
Posts: 53
Re: American economists continually attempt to gauge the health  [#permalink]

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11 Sep 2013, 05:07
Hi carcass

Can you explain the answers for ques 1 and 3.. i am a little confused even after seeing your explanations..
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Schools: HBS '19 (S)
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Re: American economists continually attempt to gauge the health  [#permalink]

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14 Sep 2013, 06:11
kawan84 wrote:
1-C [Author does talks abt the future course of economy is defined based on economic indicators and understanding of the framework. Also, first line of passage says economists guage the health of the economy and 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 economic growth.]. At first, I thought A but came up with a solid reason for C

2- A[Only coz of events surounding the turn contributed to the change.] This is one is disguised and really tough. Total Guess.

3- E[Coz of last line in passage]

4-A[ Lagging indicators cannot predict]

Pls confirm the OA

I agree ... it should be C for q1 ...
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Re: American economists continually attempt to gauge the health  [#permalink]

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03 Apr 2015, 04:51
Nice passage. Answered all correctly. Ask me, if you have any questions.
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Re: American economists continually attempt to gauge the health  [#permalink]

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20 Oct 2016, 02:51
i have the gut feeling that the ans wont be given directly. hence makes so many mistakes
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Re: American economists continually attempt to gauge the health  [#permalink]

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10 Feb 2017, 09:08
I want to know why B is the correct option for the last question.I feel A is the better choice.
Director
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American economists continually attempt to gauge the health  [#permalink]

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11 Feb 2017, 07:49
Gomze wrote:
I want to know why B is the correct option for the last question.I feel A is the better choice.

Hi Gomze..

My reasoning:

4. The passage suggests that lagging indicators would be least helpful in determining which of the following?
· whether predictions based on the behavior of the mortgage market were accurate---lagging indicators are used to confirm whether economist envisaged correctly about economy..here a prediction is being "assessed"..so a property of lagging indicator
· whether companies ought to cut costs in order to avoid short-term losses--Here we are determining future(a prediction) , not a property of lagging indicators.
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Re: American economists continually attempt to gauge the health  [#permalink]

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11 Feb 2017, 23:11
Gomze wrote:
I want to know why B is the correct option for the last question.I feel A is the better choice.

4. The passage suggests that lagging indicators would be least helpful in determining which of the following?
· whether predictions based on the behavior of the mortgage market were accurate
· whether companies ought to cut costs in order to avoid short-term losses
· whether recent trends in the employment rate were consistent with the overall economic picture
· whether financial analysts are correct in their assessment of recent economic developments
· whether the government was justified in taking action to boost the economy

According to the passage Lagging indicators cannot predict the way economy id heading , but it can only confirm if earlier predictions were correct. So it would be least helpful in making decisions related to the actions that should be taken in order to better the economy . Hence lagging indicators cannot help make the decision echoed in option B.

Actually A can be confirmed by using lagging indicators! Reread the passage , you will be clear on that.
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Re: American economists continually attempt to gauge the health  [#permalink]

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30 Aug 2017, 02:00
Please explain why E is not correct for Q2 and how D is correct ?
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Re: American economists continually attempt to gauge the health  [#permalink]

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10 Oct 2017, 10:40
Explanation for Q2:

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.

(D) 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.
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Re: American economists continually attempt to gauge the health  [#permalink]

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20 Sep 2018, 15:22

Official Solution (Credit: Manhattan Prep)

The primary purpose of the passage is to

compare the utility of various economic indicators

explain the process by which economists draw conclusions about key factors of economic change

present a conceptual framework used by economists to prescribe economic goals

trace the development of a set of economic devices

argue for the continued evaluation of economic factors affecting the business cycle
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 indicators."

(B) This choice mistakenly focuses on a process that is not discussed in the passage.

(C) This choice focuses only on a few sentences in the last paragraph of the passage.

(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 objective comparison.
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Re: American economists continually attempt to gauge the health  [#permalink]

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20 Sep 2018, 15:23

Official Solution (Credit: Manhattan Prep)

The information in the passage suggests that which of the following would most strongly indicate an imminent change in the business cycle?

a decrease in the employment rate

a decrease in the number of new homes built per month

an increase in the number of new automobiles produced each month

an increase in the difference between manufacturing costs and retail revenues for large home appliances

a decrease in the number of corporate bankruptcies per month
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 (paragraph 2).

(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 (paragraph 3).

(C) This choice focuses on manufacturing, which is a coincident indicator (paragraph 2).

(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.
_________________

Verb Tenses Simplified

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Joined: 24 Oct 2016
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Re: American economists continually attempt to gauge the health  [#permalink]

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20 Sep 2018, 15:24

Official Solution (Credit: Manhattan Prep)

The passage suggests that lagging indicators would be least helpful in determining which of the following?

whether predictions based on the behavior of the mortgage market were accurate

whether companies ought to cut costs in order to avoid short-term losses

whether recent trends in the employment rate were consistent with the overall economic picture

whether financial analysts are correct in their assessment of recent economic developments

whether the government was justified in taking action to boost the economy
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.
_________________

Verb Tenses Simplified

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Re: American economists continually attempt to gauge the health   [#permalink] 20 Sep 2018, 15:24
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