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Conventional wisdom has it that large deficits in the United States bu

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New post 28 Nov 2018, 05:55
How is C correct for Q2? The part of the passage that says 'the government will tend to finance its deficits by increasing the money supply with insufficient regard for whether there is enough room for economic growth to enable such an increase to occur without causing inflation' clearly supports option A.
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New post 02 Dec 2018, 13:20
GMATNinja wrote:
ShashankDave wrote:
GMATNinja
Please help with Q1.

1. Which of the following best summarizes the central idea of the passage?
A. A decrease in nongovernment borrowing or an increase in the availability of credit can eliminate or lessen the ill effects of increased borrowing by the government.
B. Educating financiers about the true relationship between large federal deficits and high interest rates will make financiers less prone to raise interest rates in response to deficits.
C. There is little support for the widely held belief that large federal deficits will create higher interest rates, as the main arguments given to defend this claim are flawed.
D. When the government borrows money, demand for credit increases, typically creating higher interest rates unless special conditions such as decreased consumer spending arise.
E. Given that most financiers believe in a cause-and-effect relationship between large deficits and high interest rates, it should be expected that financiers will raise interest rates.

I dont understand how C is correct. My problem is the opening words "There is little support for the widely believed.." Little support? from whom? Where did author mention that there is little support?
That's what I don't understand. How can we say that there is little support? We can say for sure that the arguments are questionable..but little support? I often make mistakes in these easy questions..please help

According to conventional wisdom, large deficits in the United States budget cause interest rates to rise. Two main arguments are given for this claim. The author describes each of these main arguments and explains why they are not valid.

The author then explains another factor that CAN causes interest rates to rise when there is a deficit: "since many financiers believe that deficits ordinarily create inflation, then admittedly they will be inclined to raise interest rates to offset mistakenly anticipated inflation. This effect, however, is due to ignorance, not to the deficit itself, and could be lessened by educating financiers on this issue." In other words, even IF interest rates rise when there is a deficit, the rise is due to ignorance, not the deficit itself.

Do deficits cause interest rates to rise? Sure, there might be some other evidence in support of the conventional wisdom, but the author has seemingly weakened all of the main arguments/evidence. We can infer that this would leave "little support" for the conventional wisdom.



GMATNinja

Followup on this

i) The author has definitely weakened the argument that "Deficits cause inflation" ....

However we do not know how people have reacted to this weakening of the argument put forth by the author in this passage

If only the author believes these weakeners and not anyone else in the public -- how can one conclude that "there is little support for this widely held belief / argument" ... Maybe just the author believe there is little support whereas everyone else in the public believes this widely held view


ii) Is B just too narrow for a central idea ? I selected B because i thought this was accurate as per mentioned in the last line ...B is perhaps a recommendation to the problem / not necessarily the main idea
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Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

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New post 06 Dec 2018, 19:13
jabhatta@umail.iu.edu wrote:
GMATNinja wrote:
ShashankDave wrote:
GMATNinja
Please help with Q1.

1. Which of the following best summarizes the central idea of the passage?
A. A decrease in nongovernment borrowing or an increase in the availability of credit can eliminate or lessen the ill effects of increased borrowing by the government.
B. Educating financiers about the true relationship between large federal deficits and high interest rates will make financiers less prone to raise interest rates in response to deficits.
C. There is little support for the widely held belief that large federal deficits will create higher interest rates, as the main arguments given to defend this claim are flawed.
D. When the government borrows money, demand for credit increases, typically creating higher interest rates unless special conditions such as decreased consumer spending arise.
E. Given that most financiers believe in a cause-and-effect relationship between large deficits and high interest rates, it should be expected that financiers will raise interest rates.

I dont understand how C is correct. My problem is the opening words "There is little support for the widely believed.." Little support? from whom? Where did author mention that there is little support?
That's what I don't understand. How can we say that there is little support? We can say for sure that the arguments are questionable..but little support? I often make mistakes in these easy questions..please help

According to conventional wisdom, large deficits in the United States budget cause interest rates to rise. Two main arguments are given for this claim. The author describes each of these main arguments and explains why they are not valid.

The author then explains another factor that CAN causes interest rates to rise when there is a deficit: "since many financiers believe that deficits ordinarily create inflation, then admittedly they will be inclined to raise interest rates to offset mistakenly anticipated inflation. This effect, however, is due to ignorance, not to the deficit itself, and could be lessened by educating financiers on this issue." In other words, even IF interest rates rise when there is a deficit, the rise is due to ignorance, not the deficit itself.

Do deficits cause interest rates to rise? Sure, there might be some other evidence in support of the conventional wisdom, but the author has seemingly weakened all of the main arguments/evidence. We can infer that this would leave "little support" for the conventional wisdom.


GMATNinja

Followup on this

i) The author has definitely weakened the argument that "Deficits cause inflation" ....

However we do not know how people have reacted to this weakening of the argument put forth by the author in this passage

If only the author believes these weakeners and not anyone else in the public -- how can one conclude that "there is little support for this widely held belief / argument" ... Maybe just the author believe there is little support whereas everyone else in the public believes this widely held view

We were not asked about what everyone else in the public believes...

Quote:
1. Which of the following best summarizes the central idea of the passage?

...we're asked which choice best summarizes the central idea of the passage (in other words, the central idea that the author presents in this passage).

jabhatta@umail.iu.edu wrote:
ii) Is B just too narrow for a central idea ? I selected B because i thought this was accurate as per mentioned in the last line ...B is perhaps a recommendation to the problem / not necessarily the main idea

Yep! Too narrow. Now that we're clearer about the exact question that's being asked, let's take another look at (B):

Quote:
(B) Educating financiers about the true relationship between large federal deficits and high interest rates will make financiers less prone to raise interest rates in response to deficits.

"Main idea" questions require us to understand why the author wrote the passage as a whole. For this reason, answer choices can accurately reflect why the author wrote a particular paragraph, or suggest a likely belief of the author. However, these kinds of choices are still incorrect answers to the question, which pertains to the entire passage.

That's why we eliminate (B) and keep (C). I hope this helps!
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New post 12 Dec 2018, 00:45
GMATNinja
Hi GmatNinja,
Could you please explain question 2nd , why option A is wrong ?

As per the line mentioned in first paragraph "The second argument supposes that the government will tend to finance its deficits by increasing the money supply with insufficient regard for whether there is enough room for economic growth to enable such an increase to occur without causing inflation. "

Why can't we infer that "The United States government does not usually care whether or not inflation increases" ?
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New post 18 Dec 2018, 19:34
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vishuvashishth wrote:
GMATNinja
Hi GmatNinja,
Could you please explain question 2nd , why option A is wrong ?

Let's pull this out of the weeds of macroeconomic policy for a minute. Here's a less jargony example:

    "Dave and Charlie are playing on an active train track, with insufficient regard for whether an oncoming train could kill them."

This does NOT mean that Dave and Charlie don't care about whether they live or die. They're just being careless when choosing where to play, making this decision without thinking about its potentially lethal consequences.

Now, let's return to the passage and your doubt:
vishuvashishth wrote:
As per the line mentioned in first paragraph "The second argument supposes that the government will tend to finance its deficits by increasing the money supply with insufficient regard for whether there is enough room for economic growth to enable such an increase to occur without causing inflation. "

Why can't we infer that "The United States government does not usually care whether or not inflation increases" ?

Take one more look at the entire sentence that you've highlighted. Does the wording of choice (A) really match what you see? Does this sentence really tell us that the government does not usually care about whether or not inflation increases?

The answer is no. The second argument zeroes in on a pretty specific scenario, where:

  • The government can finance its deficits by increasing the money supply.
  • The economy could have room for this increase, in which case inflation won't occur.
  • The economy could NOT have room for this growth, in which case inflation would occur.

And the second argument claims that the government does not devote enough attention to whether there is enough room for economic growth. This does NOT imply that the government doesn't care about inflation itself. Rather, it implies that the government is not sufficiently careful when considering whether its actions could lead to inflation. This is much better matched by choice (C):

Quote:
(C) The United States government is sometimes careless in formulating its economic policies.

I hope this helps!
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New post 17 Feb 2019, 06:45
I am unable to solve below mentioned questions. Can anyone help me?

2. It can be inferred from the passage that proponents of the second argument would most likely agree with which of the following statements?

(A) The United States government does not usually care whether or not inflation increases.
(B) People in the United States government generally know very little about economics.
(C) The United States government is sometimes careless in formulating its economic policies.
(D) The United States government sometimes relies too much on the easy availability of foreign credit.
(E) The United States government increases the money supply whenever there is enough room for growth to support the increase

4. The author uses the term "admittedly" (see highlighted text) in order to indicate that

(A) the second argument has some truth to it, though not for the reasons usually supposed
(B) the author has not been successful in attempting to point out inadequacies in the two arguments
(C) the thesis that large deficits directly cause interest rates to rise has strong support after all
(D) financiers should admit that they were wrong in thinking that large deficits will cause higher inflation rates
(E) financiers generally do not think that the author's criticisms of the second argument are worthy of consideration
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Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

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New post 17 Feb 2019, 22:22
took 12 mins and still got Q4 wrong :(
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Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

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New post 18 Feb 2019, 05:59
GMATNinja

Can you please help me with Q4?

thanks
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Re: Conventional wisdom has it that large deficits in the United States bu   [#permalink] 18 Feb 2019, 05:59

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