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At the peak of tulip mania in Holland, in March 1637, some single

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At the peak of tulip mania in Holland, in March 1637, some single  [#permalink]

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Updated on: 06 Oct 2019, 21:52
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At the peak of tulip mania in Holland, in March 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman. It is generally considered the first recorded speculative bubble. The term "tulip mania" is now often used metaphorically to refer to any large economic bubble (when asset prices deviate from intrinsic values).

The event was popularized in 1841 by British journalist Charles Mackay. According to Mackay, at one point 12 acres of land were offered for a Semper Augustus bulb. Mackay claims that many such investors were ruined by the fall in prices, and Dutch commerce suffered a severe shock. Some modern scholars, however, feel that the mania was not quite as extraordinary as Mackay described. Some even argue that not enough price data remain, historically, to represent an all out tulip bulb bubble.

In her 2007 scholarly analysis Tulipmania, Anne Goldgar states that the phenomenon was limited to "a fairly small group", and that most accounts from the period are based on a few contemporary pieces of propaganda. While Mackay's account held that a wide array of society was involved in the tulip trade, Goldgar's study of archived contracts found that even at its peak the trade in tulips was conducted almost exclusively by merchants and skilled craftsmen who were wealthy, but not members of the nobility. Thus, any economic fallout from the bubble was very limited. Goldgar, who identified many prominent buyers and sellers in the market, found fewer than half a dozen who experienced financial troubles in the time period, and even of these cases it is not clear that tulips were to blame. This is not altogether surprising. Although prices had risen, money had not exchanged hands between buyers and sellers. Thus profits were never realized for sellers; unless sellers had made other purchases on credit in expectation of the profits, the collapse in prices did not cause anyone to lose money.

There is no dispute that prices for tulip bulb contracts rose and then fell in 1636–37, but even a dramatic rise and fall in prices does not necessarily mean that an economic or speculative bubble developed and then burst. For tulip mania to have qualified as an economic bubble, the price of tulip bulbs would need to have become unhinged from the intrinsic value of the bulbs. Modern economists have advanced several possible reasons for why the rise and fall in prices may not have constituted a bubble. For one, the increases of the 1630s corresponded with a lull in the Thirty Years' War, which occurred between 1618 and 1648. Hence market prices were responding rationally to a rise in demand. However, the fall in prices was faster and more dramatic than the rise, and did not result from a sudden resurgence in the war.

1. The author of the passage implies that had the lull in the Thirty Years' War ceased more abruptly then

A. the tulip mania would have likely spread throughout other parts of Europe
B. the price of tulips would not have become separated from the intrinsic worth of the flower
C. the price of the tulips would have fallen at a similar rate, if not even more steeply
D. the drop in the number of tulips traded would not have been as significant
E. the aristocracy would have likely suffered significant losses as a result of the tulip trade

2. Based on the passage, all of the following are mentioned as casting doubt on Mackay’s thesis EXCEPT

A. Accounts of tulip mania came from limited and not totally credible sources
B. Trade of tulips was limited to a certain group of people
C. There was a dearth of information relating to the price of tulips throughout the mania
D. The nobility ceased to trade in tulips once prices began to increase sharply
E. The rise in the price of tulips corresponded with the changes in the Thirty Years War

3. It can be inferred from the passage that which of the following applies to the merchant and skilled craftsmen in 17th century Holland who traded in tulips?

A. They made up a smaller total percentage of the economy than did the nobility.
B. They were likely to experience financial difficulties during the tulip mania.
C. They used the term “tulip mania” to refer to the high prices of tulips in the 17th century.
D. They caused an economic crisis through their speculative trading of tulips.
E. They commonly sold highly priced tulips to members of the nobility.

4. The author of the passage believes that an economic bubble occurs when

A. the demand for a luxury good becomes far greater than the supply of that good
B. the price of a good far exceeds the inherent worth of that good
C. too many buyers pay a price that the sellers know is inflated
D. there is a sudden absence of any buyers for a product
E. there a dramatic rise in prices followed by a sudden drop

5.According to the passage, Charles Mackay believed which of the following about the “tulip mania” that engulfed Holland in the 17th century?

A. The phenomenon was actually limited to a small number of investors.
B. All those who had invested money in the tulip trade were unable to realize any profit.
C. There is not enough data to support the claim that other sectors of the Dutch economy were adversely affected.
D. Speculation on tulips could negatively affect other parts of the economy.
E. The price of the tulip dropped so precipitously that all of Europe was affected.

6.The function of the last paragraph is to

A. discount another possible explanation for the tulip mania
B. provide a more valid explanation than the one offered in Goldgar’s study
C. account for an observed trend in the Dutch economy in 1636-37
D. discuss a new theory and then illustrate the shortcomings in that theory
E. illustrate the connection between economic and political events

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Originally posted by Gnpth on 23 Nov 2017, 09:58.
Last edited by SajjadAhmad on 06 Oct 2019, 21:52, edited 2 times in total.
Updated - Complete topic (807).
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Re: At the peak of tulip mania in Holland, in March 1637, some single  [#permalink]

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24 Nov 2017, 14:16
1
8:30;3 out of 4. Whiffed on the inference question on #3.

#3 is A and not B because it explicitly mentions that "many prominent buyers... fewer than half a dozen who experienced financial troubles" suggesting that it is unlikely that even an average merchant/craftsmen is likely to experience financial pains because less exposure to that industry?

But, im still not sure that we could properly infer that merchants/craftsmen total econ % < nobility econ %. Am I missing something in my read?

Passage referenced below:
"even at its peak the trade in tulips was conducted almost exclusively by merchants and skilled craftsmen who were wealthy, but not members of the nobility. Thus, any economic fallout from the bubble was very limited. Goldgar, who identified many prominent buyers and sellers in the market, found fewer than half a dozen who experienced financial troubles in the time period, and even of these cases it is not clear that tulips were to blame"
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Re: At the peak of tulip mania in Holland, in March 1637, some single  [#permalink]

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30 Nov 2017, 01:28
geniecc wrote:
8:30;3 out of 4. Whiffed on the inference question on #3.

#3 is A and not B because it explicitly mentions that "many prominent buyers... fewer than half a dozen who experienced financial troubles" suggesting that it is unlikely that even an average merchant/craftsmen is likely to experience financial pains because less exposure to that industry?

But, im still not sure that we could properly infer that merchants/craftsmen total econ % < nobility econ %. Am I missing something in my read?

Passage referenced below:
"even at its peak the trade in tulips was conducted almost exclusively by merchants and skilled craftsmen who were wealthy, but not members of the nobility. Thus, any economic fallout from the bubble was very limited. Goldgar, who identified many prominent buyers and sellers in the market, found fewer than half a dozen who experienced financial troubles in the time period, and even of these cases it is not clear that tulips were to blame"

even at its peak the trade in tulips was conducted almost exclusively by merchants and skilled craftsmen who were wealthy, but not members of the nobility. Thus, any economic fallout from the bubble was very limited

It is pretty evident from this line that people who traded tulips constituted a minor part. If they had constituted a larger part , the economic fallout would have been severe.
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Re: At the peak of tulip mania in Holland, in March 1637, some single  [#permalink]

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30 Nov 2017, 02:17
2
1. The author of the passage implies that had the lull in the Thirty Years' War ceased more abruptly then

A. the tulip mania would have likely spread throughout other parts of Europe
B. the price of tulips would not have become separated from the intrinsic worth of the flower
C. the price of the tulips would have fallen at a similar rate, if not even more steeply
D. the drop in the number of tulips traded would not have been as significant
E. the aristocracy would have likely suffered significant losses as a result of the tulip trade

Text Explanation

According to the passage, the lull in the Thirty Years War led to an increase in demand. So the rise in the demand for tulips was expected. The passage says that the prices of tulips suddenly fell, though there was still a lull in the war. Thus, we can infer that the lull did not cause the drop in prices. Had the lull suddenly stopped—as the question asks—then the prices most likely would have still fallen. And since the start of war would have brought about a general drop in demand, the demand for tulips may have fallen even more quickly. This matches up best with (C).

(A) is not supported by the passage. If anything, the passage suggests the opposite: tulip mania would have spread throughout Europe.

(B) is wrong. The war starting up again would not affect the rise in prices of tulips since the price was already falling, regardless of the status of the war.

(D) is effectively the opposite of what (C) is saying. (D) is wrong because we would expect the drop to be the same or even greater.

(E) is worded unpleasantly and refers to the aristocracy again. We have no support in the passage with regards to the aristocracy and there hold on the tulip industry, so we can eliminate (E).

FAQ: What does this sentence mean: "The passage says that the prices of tulips suddenly fell, though there was still a lull in the war"?

A: First, a "lull" is a pause. So, a lull in the war = a pause in the war.

The author of the passage implies that had the lull in the Thirty Year’s War ceased more abruptly then the price of the tulips would have fallen at a similar rate, if not even more steeply.

This can be re-written as:

The author of the passage implies that if the lull in the Thirty Year’s War had ceased more abruptly then the price of the tulips would have fallen at a similar rate, if not even more steeply.

This sentence expresses an "if" conditional.

the price of the tulips would have fallen at a similar rate, if not even more steeply.

This is saying that either the price of tulips would have fallen at a similar rate, orthe price would have fallen even more steeply.

How do we know this is true? The passage says:

For one, the increases of the 1630s corresponded with a lull in the Thirty Years' War, which occurred between 1618 and 1648. Hence market prices were responding rationally to a rise in demand. However, the fall in prices was faster and more dramatic than the rise, and did not result from a sudden resurgence in the war.

So, prices went up when the war stopped (a lull in the war = a stop in the war). Demand rose during peacetime.

However, prices suddenly went down very suddenly, even though the war had not started yet.

The question asks us what would have happened to prices if the war had started again sooner. Well, we know that demand went up because the war stopped. Thus we can infer that demand would go down if the war started again. Therefore, if the war had started sooner, prices would have gone down just as much, or even more, than they actually had.
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Re: At the peak of tulip mania in Holland, in March 1637, some single  [#permalink]

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30 Nov 2017, 02:20
1
3. It can be inferred from the passage that which of the following applies to the merchant and skilled craftsmen in 17th century Holland who traded in tulips?

A. They made up a smaller total percentage of the economy than did the nobility.
B. They were likely to experience financial difficulties during the tulip mania.
C. They used the term “tulip mania” to refer to the high prices of tulips in the 17th century.
D. They caused an economic crisis through their speculative trading of tulips.
E. They commonly sold highly priced tulips to members of the nobility.

Text Explanation

According to Goldgar only merchants and skilled craftsmen were involved in the tulip trade, not nobles. Her conclusion? That the economic impact was limited. Therefore, the merchants and skilled craftsmen who were involved in tulip trade did not have that much of an effect on the economy as did the nobility. This leads us to answer choice (A).

(B) sounds tempting. But the paragraph goes onto say that Goldgar “found fewer than half a dozen who experienced financial troubles.”

(C) is wrong because nowhere does the passage say that the merchants coined the term “tulip mania.”

(D) goes against the entire Goldgar paragraph, which says the economic fallout was limited to the merchants. Thus, there was no broader economic crisis.

(E) is in no way supported by the passage.

FAQ: Can you explain choice A in more detail?

A: The answer choice (A) is correct because this question is an inference question, so the answer choice won't be directly stated in the passage—we have to infer it from the information they do mention in the passage! :D

Let's take a closer look! The key to this inference question is in the third paragraph:

While Mackay's account held that a wide array of society was involved in the tulip trade, Goldgar's study of archived contracts found that even at its peak the trade in tulips was conducted almost exclusively by merchants and skilled craftsmen who were wealthy, but not members of the nobility. Thus, any economic fallout from the bubble was very limited.

In other words, Anne Goldgar's study found that the tulip trade was conducted by merchants and skilled craftsmen who were not part of the nobility. Goldgar's study, which finds that only a small group of merchants and craftsmen was involved in the tulip trade, actually contrasts with Mackay's account (in paragraph 2) that "a wide array of society was involved in the tulip trade." In addition, economic fallout from the tulip bubble was "limited," because only this small, "exclusive" group of merchants and craftsmen was affected—and not the nobility.

From this part of the passage, we might conclude that if members of the nobility had been involved in the tulip trade, then the economic impact and fallout may have been more widespread and not so "limited." So we can infer that the nobility must have had more economic power and impact. That is, the nobility must have made up a larger percentage of the economy.
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Re: At the peak of tulip mania in Holland, in March 1637, some single  [#permalink]

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Updated on: 04 Sep 2018, 15:49
I encountered different question in same paragraph. You can add this one too with the paragraph. Gnpth, broall

According to the passage, Charles Mackay believed which of the following about the “tulip mania” that engulfed Holland in the 17th century?

A. The phenomenon was actually limited to a small number of investors.
B. All those who had invested money in the tulip trade were unable to realize any profit.
C. There is not enough data to support the claim that other sectors of the Dutch economy were adversely affected.
D. Speculation on tulips could negatively affect other parts of the economy.
E. The price of the tulip dropped so precipitously that all of Europe was affected.
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Originally posted by aragonn on 04 Sep 2018, 15:42.
Last edited by aragonn on 04 Sep 2018, 15:49, edited 2 times in total.
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Re: At the peak of tulip mania in Holland, in March 1637, some single  [#permalink]

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04 Sep 2018, 15:43
1

Official Explanation

Q. According to the passage, Charles Mackay believed which of the following about the “tulip mania” that engulfed Holland in the 17th century?

The key to this question is making sure not to mix up Mackay beliefs with those of Goldgar. Goldgar, who is mentioned in the third paragraph not the second paragraph, believes that the tulip crisis was limited to a small number of investors (out with (A)). She also states that there is not enough data to back up Mackay’s claim (out with (C)).

Both (B) and (E) are too extreme—meaning they take information in the passage but then make unwarranted conclusions. That leaves us with (D), which is supported by the following parts of the text:

1. "Mackay claims that many such investors were ruined by the fall in prices, and Dutch commerce suffered a severe shock."

2. "While Mackay's account held that a wide array of society was involved in the tulip trade, Goldgar's study of archived contracts found that even at its peak the trade in tulips was conducted almost exclusively by merchants and skilled craftsmen who were wealthy, but not members of the nobility.Thus, any economic fallout from the bubble was very limited."
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Re: At the peak of tulip mania in Holland, in March 1637, some single  [#permalink]

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04 Sep 2018, 15:53

Official Explanation

Q4. The author of the passage believes that an economic bubble occurs when

(B) is directly supported by the lines, "the price of tulip bulbs would need to have become unhinged from the intrinsic value of the bulbs."

(A) is not mentioned.

(C) sounds plausible but does not match up with the author's definition.

(D) is wrong because the passage does not talk about a "sudden absence of buyers" in regards to an economic bubble.

(E) is very tempting, and it may match up with the reader's sense of what an economic bubble is. But remember to base your answer on the passage and not what you think.
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Re: At the peak of tulip mania in Holland, in March 1637, some single  [#permalink]

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04 Sep 2018, 15:58
One more question that is not here. Gnpth, broall

The function of the last paragraph is to

A. discount another possible explanation for the tulip mania
B. provide a more valid explanation than the one offered in Goldgar’s study
C. account for an observed trend in the Dutch economy in 1636-37
D. discuss a new theory and then illustrate the shortcomings in that theory
E. illustrate the connection between economic and political events
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“Once you’ve eliminated the impossible, whatever remains, however improbable, must be the truth.”

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Re: At the peak of tulip mania in Holland, in March 1637, some single  [#permalink]

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04 Sep 2018, 15:59

Official Explanation

The function of the last paragraph is to ---> The last paragraph offers up another explanation for the rise and fall in tulip prices: the Thirty Years War.

(A) is the opposite, since the paragraph describes, not discounts, another explanation.

(B) is wrong because the passage does not say one explanation is more valid than the other.

(C) at first may not seem like the answer, but remember that tulip mania happened in 1636-37. The last paragraph is to account for the rise and fall in the price of tulips (an observed trend).

(D) is wrong because the passage does not mention any shortcomings to the theory in the final paragraph.

(E) is tempting because the Thirty Years War was clearly a political event. But notice how general (E) is. The purpose the passage is not to talk about a connection between economic and political events in general but how one specific political events was tied to one specific economic event.

FAQ: I chose option (D) as the correct answer. Could you clarify how you eliminated this answer choice?

The function of the last paragraph is to:

(D) discuss a new theory and then illustrate the shortcomings in that theory

We know that the last paragraph is discussing possible explanations for why tulip mania was not an economic bubble. Maybe one theory was that the tulip price change was a rational case of supply and demand response:

Modern economists have advanced several possible reasons for why the rise and fall in prices may not have constituted a bubble. For one, the increases of the 1630s corresponded with a lull in the Thirty Years' War, which occurred between 1618 and 1648. Hence market prices were responding rationally to a rise in demand.
And here's the next and last sentence of the last paragraph:

However, the fall in prices was faster and more dramatic than the rise, and did not result from a sudden resurgence in the war.
The last sentence isn't talking about a shortcoming of a new theory--it's just pointing out a contrast between the rise and fall of prices. That could be a complication that any good explanation will have to address. Since the paragraph doesn't present any evidence to show that tulip prices became unhinged from the intrinsic value of the bulbs, it isn't really talking about shortcomings of the new theory it proposed. After we finish the passage, we surely cannot say that the change in prices was definitely a bubble.

What the last paragraph does do is talk generally about trends in the rise and fall of tulip prices. It states that several reasons have been proposed for this, one of which is that the time corresponded with the Thirty Years' War. Answer choice (C) talks about an observed trend in the Dutch economy from 1637-37 (changes in tulip prices) and is the best choice.
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Re: At the peak of tulip mania in Holland, in March 1637, some single  [#permalink]

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12 Feb 2019, 17:55
Found it tough! Took 10:42 min including 4 min to read the passage!

Passage Map:

1) Bubble
2) Mackay. Opinions of modern scholars
3) Goldgar's analysis
4) No bubble burst
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Re: At the peak of tulip mania in Holland, in March 1637, some single  [#permalink]

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22 Jul 2019, 01:40
Hi everyone,

here is my analysis

P1: the first speculative bubble: Tulip mania
P2:CM's view on tulip mania VS modern scholars view of the phenomenon
P3:AG study in contrast with CM'study of the phenomenon
P4:Why tulip mania can't be considered as a bubble

MP: to discuss different views on a phenomenon and to explain why such phenomenon doesn't fall into a certain category

1. The author of the passage implies that had the lull in the Thirty Years' War ceased more abruptly then

refer to P4 and to:"Hence market prices were responding rationally to a rise in demand. However, the fall in prices was faster and more dramatic than the rise, and did not result from a sudden resurgence in the war."

A. the tulip mania would have likely spread throughout other parts of Europe - not mentioned
B. the price of tulips would not have become separated from the intrinsic worth of the flower - out of context here
C. the price of the tulips would have fallen at a similar rate, if not even more steeply - the contrast expressed by however implies that the prices should have fallen at a slower rate, correct
D. the drop in the number of tulips traded would not have been as significant -not mentioned
E. the aristocracy would have likely suffered significant losses as a result of the tulip trade - aristocracy is not mentioned

2. Based on the passage, all of the following are mentioned as casting doubt on Mackay’s thesis EXCEPT

refer to the end of P2 and to P3

A. Accounts of tulip mania came from limited and not totally credible sources - mentioned by AG
B. Trade of tulips was limited to a certain group of people - mentioned by AG
C. There was a dearth of information relating to the price of tulips throughout the mania -mentioned in the end of the 2nd P
D. The nobility ceased to trade in tulips once prices began to increase sharply - nowhere mentioned
E. The rise in the price of tulips corresponded with the changes in the T - refer to the last part of the last paragraph

3. It can be inferred from the passage that which of the following applies to the merchant and skilled craftsmen in 17th century Holland who traded in tulips?

A. They made up a smaller total percentage of the economy than did the nobility. - the passage states that they were not as wealthy as the nobility and right after "thus the fallout was limited". I think that this relation (merchants not being as wealthy as nobility AND limited fallout) implies that if nobility were part of this phenomenon the fallout might be larger and we can infer that the nobility accounted for bigger %
B. They were likely to experience financial difficulties during the tulip mania. -AG states that rarely people involved in tp experienced FD
C. They used the term “tulip mania” to refer to the high prices of tulips in the 17th century. - nowhere mentioned ab merchants
D. They caused an economic crisis through their speculative trading of tulips. -no crisis mentioned according to AG
E. They commonly sold highly priced tulips to members of the nobility. -nowhere mentioned

4. The author of the passage believes that an economic bubble occurs when

A. the demand for a luxury good becomes far greater than the supply of that good - luxury goods are not discussed
B. the price of a good far exceeds the inherent worth of that good - as the last P states, correct
C. too many buyers pay a price that the sellers know is inflated - too many buyers doesn't seem to be a requirement
D. there is a sudden absence of any buyers for a product - not a requirement and kind of opposite to what would be expected
E. there a dramatic rise in prices followed by a sudden drop -the sudden drop is incorrect as stated by the example of the thirty years war

5.According to the passage, Charles Mackay believed which of the following about the “tulip mania” that engulfed Holland in the 17th century?

refer to P2 here

A. The phenomenon was actually limited to a small number of investors. - opposite acc to CM
B. All those who had invested money in the tulip trade were unable to realize any profit. - too extreme for the usage of all
C. There is not enough data to support the claim that other sectors of the Dutch economy were adversely affected. -this is the view of CM's opposers
D. Speculation on tulips could negatively affect other parts of the economy. - correct
E. The price of the tulip dropped so precipitously that all of Europe was affected. -nowhere mentioned

6.The function of the last paragraph is to

A. discount another possible explanation for the tulip mania -no other explanation is discussed here
B. provide a more valid explanation than the one offered in Goldgar’s study -there is no alternative explanation
C. account for an observed trend in the Dutch economy in 1636-37 - correct
D. discuss a new theory and then illustrate the shortcomings in that theory -no new theory discussed and no shortcomings included
E. illustrate the connection between economic and political events - no connection was made
Re: At the peak of tulip mania in Holland, in March 1637, some single   [#permalink] 22 Jul 2019, 01:40
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