GMAT Question of the Day - Daily to your Mailbox; hard ones only

It is currently 14 Nov 2018, 16:00

Close

GMAT Club Daily Prep

Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track
Your Progress

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.

Close

Request Expert Reply

Confirm Cancel
Events & Promotions in November
PrevNext
SuMoTuWeThFrSa
28293031123
45678910
11121314151617
18192021222324
2526272829301
Open Detailed Calendar
  • $450 Tuition Credit & Official CAT Packs FREE

     November 15, 2018

     November 15, 2018

     10:00 PM MST

     11:00 PM MST

    EMPOWERgmat is giving away the complete Official GMAT Exam Pack collection worth $100 with the 3 Month Pack ($299)
  • Free GMAT Strategy Webinar

     November 17, 2018

     November 17, 2018

     07:00 AM PST

     09:00 AM PST

    Nov. 17, 7 AM PST. Aiming to score 760+? Attend this FREE session to learn how to Define your GMAT Strategy, Create your Study Plan and Master the Core Skills to excel on the GMAT.

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

  new topic post reply Question banks Downloads My Bookmarks Reviews Important topics  
Author Message
TAGS:

Hide Tags

Director
Director
User avatar
Status: Everyone is a leader. Just stop listening to others.
Joined: 22 Mar 2013
Posts: 793
Location: India
GPA: 3.51
WE: Information Technology (Computer Software)
Premium Member Reviews Badge
Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post Updated on: 06 Nov 2018, 22:33
8
1
26
Question 1
00:00
A
B
C
D
E

based on 880 sessions

75% (03:13) correct 25% (03:06) wrong

HideShow timer Statistics

Question 2
00:00
A
B
C
D
E

based on 888 sessions

32% (01:32) correct 68% (01:28) wrong

HideShow timer Statistics

Question 3
00:00
A
B
C
D
E

based on 838 sessions

76% (01:23) correct 24% (01:22) wrong

HideShow timer Statistics

Question 4
00:00
A
B
C
D
E

based on 826 sessions

43% (01:16) correct 57% (01:20) wrong

HideShow timer Statistics

NEW PROJECT!: Back to basic => Give your explanation- Get Kudos Point for best explanation

Passage-17 GMATPrep RCs-Collection (Main article)

Conventional wisdom has it that large deficits in the United States budget cause interest rates to rise. Two main arguments are given for this claim. According to the first, as the deficit increases, the government will borrow more to make up for the ensuing shortage of funds. Consequently, it is argued, if both the total supply of credit (money available for borrowing) and the amount of credit sought by nongovernment borrowers remain relatively stable, as is often supposed, then the price of credit (the interest rate) will increase. That this is so is suggested by the basic economic principle that if supplies of a commodity (here, credit) remain fixed and demand for that commodity increases, its price will also increase. 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. It is then argued that financiers will expect the deficit to cause inflation and will raise interest rates, anticipating that because of inflation the money they lend will be worth less when paid back.

Unfortunately for the first argument, it is unreasonable to assume that nongovernment borrowing and the supply of credit will remain relatively stable. Nongovernment borrowing sometimes decreases. When it does, increased government borrowing will not necessarily push up the total demand for credit. Alternatively, when credit availability increases, for example through greater foreign lending to the United States, then interest rates need not rise, even if both private and government borrowing increase.

The second argument is also problematic. Financing the deficit by increasing the money supply should cause inflation only when there is not enough room for economic growth. Currently, there is no reason to expect deficits to cause inflation. However, 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.


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.



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



3. Which of the following claims concerning the United States government's financing of the deficit does the author make in discussing the second argument?

(A) The government will decrease the money supply in times when the government does not have a deficit to finance.
(B) The government finances its deficits by increasing the money supply whenever the economy is expanding.
(C) As long as the government finances the deficit by borrowing, nongovernment borrowers will pay higher interest rates.
(D) The only way for the government to finance its deficits is to increase the money supply without regard for whether such an increase would cause inflation.
(E) Inflation should be caused when the government finances the deficit by increasing the money supply only if there is not enough room for economic 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


_________________

Piyush K
-----------------------
Our greatest weakness lies in giving up. The most certain way to succeed is to try just one more time. ― Thomas A. Edison
Don't forget to press--> Kudos :)
My Articles: 1. WOULD: when to use? | 2. All GMATPrep RCs (New)
Tip: Before exam a week earlier don't forget to exhaust all gmatprep problems specially for "sentence correction".


Originally posted by PiyushK on 12 Aug 2014, 06:54.
Last edited by Bunuel on 06 Nov 2018, 22:33, edited 5 times in total.
Renamed the topic and edited the question.
Most Helpful Community Reply
Retired Moderator
avatar
B
Status: On a mountain of skulls, in the castle of pain, I sit on a throne of blood.
Joined: 30 Jul 2013
Posts: 337
GMAT ToolKit User Reviews Badge
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 19 Aug 2014, 05:44
10
2
Time taken: 07:46 mins

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.passage never says the borrowing is evil. Neither does it shows ways to reverse the effects of government borrowing
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.There is no educating financers. Financers are merely a case in point that how half truths can lead to faulty reasons to adopt a policy.
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.Yes. It brings into question the validity of a popular belief, highlights 2 arguments used to rationalise this popular belief and calls the arguments into question.
D. When the government borrows money, demand for credit increases, typically creating higher interest rates unless special conditions such as decreased consumer spending arise. Decreased consumer spending doesnt come into the picture anywhere in the passage
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.This is just one of the arguments targetted by the author. This point is used to show how a popular belief can lead to faulty adoption of policies.


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.There is nothing in the passage to support this
B. People in the United States government generally know very little about economics.There is nothing in the passage to support this
C. The United States government is sometimes careless in formulating its economic policies.Could be true. It does seem to resonate with the tone of the passage
D. The United States government sometimes relies too much on the easy availability of foreign credit.Passage never discourages nor encourages foreign credit.
E. The United States government increases the money supply whenever there is enough room for growth to support the increase.Goes against the passage. Passage states that there are times when money supply is increased even when there is no room for growth in the economy.



3. Which of the following claims concerning the United States government's financing of the deficit does the author make in discussing the second argument?
A. The government will decrease the money supply in times when the government does not have a deficit to finance.Argument never says this. It does say that the govt may increase the money supply when it has a deficit to finance.
B. The government finances its deficits by increasing the money supply whenever the economy is expanding."economy expanding"? OFS since this term is not used in the passage
C. As long as the government finances the deficit by borrowing, nongovernment borrowers will pay higher interest rates.Disctinction between govt and non-govt borrowers is not used in the 2nd argument. That distinction is only used in the 1st argument.
D. The only way for the government to finance its deficits is to increase the money supply without regard for whether such an increase would cause inflation."only way"? The argument never uses any restrictive terms like that.
E. Inflation should be caused when the government finances the deficit by increasing the money supply only if there is not enough room for economic growth to support the increase.Perfect.


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 supposedYes. The argument only has truth to it because financiers believe popularly held belief and make a decision based on that.
B. the author has not been successful in attempting to point out inadequacies in the two argumentsNothing in the passage to believe this
C. the thesis that large deficits directly cause interest rates to rise has strong support after allOn the contrary the passage argues the other way
D. financiers should admit that they were wrong in thinking that large deficits will cause higher inflation ratesThe passage never blames financers for anything. On the contrary, it makes them look like the victims of popular belief.
E. financiers generally do not think that the author's criticisms of the second argument are worthy of considerationFinancers are used as an object in the passage. They never do anything other than make passive judgements based on popular belief
General Discussion
Director
Director
User avatar
Status: Everyone is a leader. Just stop listening to others.
Joined: 22 Mar 2013
Posts: 793
Location: India
GPA: 3.51
WE: Information Technology (Computer Software)
Premium Member Reviews Badge
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 13 Aug 2014, 20:31
2

_________________

Piyush K
-----------------------
Our greatest weakness lies in giving up. The most certain way to succeed is to try just one more time. ― Thomas A. Edison
Don't forget to press--> Kudos :)
My Articles: 1. WOULD: when to use? | 2. All GMATPrep RCs (New)
Tip: Before exam a week earlier don't forget to exhaust all gmatprep problems specially for "sentence correction".

Manager
Manager
avatar
Joined: 12 May 2013
Posts: 67
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 19 Aug 2014, 06:19
I think the answer to the Q3 should be E

as the passage suggests that "there is no reason to expect deficits to cause inflation" (last para)
and hence we can conclude that US will increase the supply of money, provided that it wont result in inflation

i agree with rest of the answers

correct me if i am wrong
Manager
Manager
avatar
Joined: 25 Apr 2014
Posts: 114
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 19 Aug 2014, 08:52
1. C
2. C
3. E
4. C

Please provide the OA.
Piyush,
What strategy do you suggest for RCs like this in which the content is nothing but a jargon to the reader? This RC mentions some business related stuff, which I was not able to comprehend at all in my first reading(or may be second reading too) so I kinda skipped most of the details and hence took long long time to figure out the answers(most of which might be wrong as well, no wonder!)
Please help . :cry:
Director
Director
User avatar
Joined: 25 Apr 2012
Posts: 689
Location: India
GPA: 3.21
WE: Business Development (Other)
Premium Member Reviews Badge
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 19 Aug 2014, 19:51
1
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.


The passage basically talks about what general thinking and the 2 reasons behind that thinking. Thereafter, The authors discusses the problem with those reason in Para 2 and para 3

A,C,E can be ruled out based on Initial reading because

A :It is not discussed here
C: There is a support but under given set of conditions
E: Yes, this happens but this is not the Central Idea but rather a point made by the author as to why this happens.
Between B and D ....Again D is more generic and does not cover the whole argument.

B is the winner here.
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.


A----What is slated in the passage is that " 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"....and therefore this can be inferred from the passage.
B. People in USA are not really discussed
C. Again, this is a very big statement to make based on the contents in the passage
D. We don't know on what US govt relies more...So cannot be inferred
E. This what the author says is ideally the case where as the proponents say that US Govt does so without considering whether economic growth is possible or not.

A is the answer here...I chose D initially but realized there are not enough pointers to that

3. Which of the following claims concerning the United States government's financing of the deficit does the author make in discussing the second argument?
A. The government will decrease the money supply in times when the government does not have a deficit to finance.
B. The government finances its deficits by increasing the money supply whenever the economy is expanding.
C. As long as the government finances the deficit by borrowing, nongovernment borrowers will pay higher interest rates.
D. The only way for the government to finance its deficits is to increase the money supply without regard for whether such an increase would cause inflation.
E. Inflation should be caused when the government finances the deficit by increasing the money supply only if there is not enough room for economic growth to support the increase.


It is a direct question and if we go back to the passage(Para 1 last part and Para 3), we can find the answer..E is the winner here

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


A for me.....
_________________


“If you can't fly then run, if you can't run then walk, if you can't walk then crawl, but whatever you do you have to keep moving forward.”

Intern
Intern
avatar
Joined: 20 Jun 2013
Posts: 3
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 20 Aug 2014, 18:08
My take
1) C
2) A
3) E
4) E

I am not sure on 4th question. It would be great if some one could explain it.

Thanks,
Tripti
Director
Director
User avatar
Status: Everyone is a leader. Just stop listening to others.
Joined: 22 Mar 2013
Posts: 793
Location: India
GPA: 3.51
WE: Information Technology (Computer Software)
Premium Member Reviews Badge
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 21 Aug 2014, 00:10
2
maggie27 wrote:
1. C
2. C
3. E
4. C

Please provide the OA.
Piyush,
What strategy do you suggest for RCs like this in which the content is nothing but a jargon to the reader? This RC mentions some business related stuff, which I was not able to comprehend at all in my first reading(or may be second reading too) so I kinda skipped most of the details and hence took long long time to figure out the answers(most of which might be wrong as well, no wonder!)
Please help . :cry:


Hi Maggie,

For such RCs one should note down details and flow while reading passage: identify how things are interrelated. This passage is definitely a 700 level
passage. I would suggest that you read few articles on national budget or foreign trade or cash flow etc, and that you familiarize yourself with terminologies such as deficit. I hope such workout may help you.

Further, GMAT is all about strategy: one should identify one's weaknesses and skip such questions that may waste time. IMO First 10 - any mid 10 - and last 10 questions are important, and skip what you think is going above head. It depends further on what score you want to achieve and what personal strategy you have to beat the algorithm within 75min.

OAs are updated you can match your answers.

Regards,
Piyush
_________________

Piyush K
-----------------------
Our greatest weakness lies in giving up. The most certain way to succeed is to try just one more time. ― Thomas A. Edison
Don't forget to press--> Kudos :)
My Articles: 1. WOULD: when to use? | 2. All GMATPrep RCs (New)
Tip: Before exam a week earlier don't forget to exhaust all gmatprep problems specially for "sentence correction".

Director
Director
User avatar
Joined: 25 Apr 2012
Posts: 689
Location: India
GPA: 3.21
WE: Business Development (Other)
Premium Member Reviews Badge
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 21 Aug 2014, 01:47
WoundedTiger wrote:
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.


The passage basically talks about what general thinking and the 2 reasons behind that thinking. Thereafter, The authors discusses the problem with those reason in Para 2 and para 3

A,C,E can be ruled out based on Initial reading because

A :It is not discussed here
C: There is a support but under given set of conditions
E: Yes, this happens but this is not the Central Idea but rather a point made by the author as to why this happens.
Between B and D ....Again D is more generic and does not cover the whole argument.

B is the winner here.
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.


A----What is slated in the passage is that " 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"....and therefore this can be inferred from the passage.
B. People in USA are not really discussed
C. Again, this is a very big statement to make based on the contents in the passage
D. We don't know on what US govt relies more...So cannot be inferred
E. This what the author says is ideally the case where as the proponents say that US Govt does so without considering whether economic growth is possible or not.

A is the answer here...I chose D initially but realized there are not enough pointers to that

3. Which of the following claims concerning the United States government's financing of the deficit does the author make in discussing the second argument?
A. The government will decrease the money supply in times when the government does not have a deficit to finance.
B. The government finances its deficits by increasing the money supply whenever the economy is expanding.
C. As long as the government finances the deficit by borrowing, nongovernment borrowers will pay higher interest rates.
D. The only way for the government to finance its deficits is to increase the money supply without regard for whether such an increase would cause inflation.
E. Inflation should be caused when the government finances the deficit by increasing the money supply only if there is not enough room for economic growth to support the increase.


It is a direct question and if we go back to the passage(Para 1 last part and Para 3), we can find the answer..E is the winner here

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


A for me.....


Hi PiyushK,

Agree with C....IN 1ST Question....But how about 2nd Question....I chose A although I think there is enough mention indirectly for the option in A.....
Proponents of the second argument will say.....
_________________


“If you can't fly then run, if you can't run then walk, if you can't walk then crawl, but whatever you do you have to keep moving forward.”

Manager
Manager
avatar
Joined: 25 Apr 2014
Posts: 114
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 21 Aug 2014, 10:01
PiyushK wrote:
maggie27 wrote:
1. C
2. C
3. E
4. C

Please provide the OA.
Piyush,
What strategy do you suggest for RCs like this in which the content is nothing but a jargon to the reader? This RC mentions some business related stuff, which I was not able to comprehend at all in my first reading(or may be second reading too) so I kinda skipped most of the details and hence took long long time to figure out the answers(most of which might be wrong as well, no wonder!)
Please help . :cry:


Hi Maggie,

For such RCs one should note down details and flow while reading passage: identify how things are interrelated. This passage is definitely a 700 level
passage. I would suggest that you read few articles on national budget or foreign trade or cash flow etc, and that you familiarize yourself with terminologies such as deficit. I hope such workout may help you.

Further, GMAT is all about strategy: one should identify one's weaknesses and skip such questions that may waste time. IMO First 10 - any mid 10 - and last 10 questions are important, and skip what you think is going above head. It depends further on what score you want to achieve and what personal strategy you have to beat the algorithm within 75min.

OAs are updated you can match your answers.

Regards,
Piyush


Thanks much Piyush. This definitely makes sense!
Manager
Manager
User avatar
Joined: 21 Jun 2014
Posts: 131
Location: United States
Concentration: General Management, Strategy
GMAT 1: 630 Q45 V31
GPA: 3.4
WE: Engineering (Computer Software)
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 26 Jun 2015, 07:23
1B (Incorrect) 2C 3E 4A

Total Time 5 minutes 44 seconds

Business Jargon is difficult to comprehend .PiyushK what do you suggest ?



Regards,
Manish Khare
_________________

Regards,
Manish Khare
"Every thing is fine at the end. If it is not fine ,then it is not the end "

Intern
Intern
avatar
Joined: 28 Jul 2016
Posts: 21
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 03 Aug 2016, 13:10
10 minutes , all correct.
maggie27: I agree with piyush here.
If you are not aiming for a very high score, its okay to skip a RC.
I haveinterest in finance ,so the article was interesting for me ,and questions were easy as well.
But if the article is about socialism ,communism or other -isms , i feel like vomiting.
Verbal Forum Moderator
User avatar
V
Status: Greatness begins beyond your comfort zone
Joined: 08 Dec 2013
Posts: 2108
Location: India
Concentration: General Management, Strategy
Schools: Kelley '20, ISB '19
GPA: 3.2
WE: Information Technology (Consulting)
GMAT ToolKit User Reviews Badge CAT Tests
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 17 Aug 2016, 00:42
Took 10 mins 20 seconds in total , including 3 mins 40 seconds to read :?
-There are 2 main arguments given for a certain claim
- The author clearly explains how both claims can be clearly and easily disproved
-He does not provide any support for the 2 widely held beliefs/claims

1. Options A,B,D and E are re instatements of the author’s refute for a certain widely held belief.
But only option (C) summarizes the central idea of the passage which is that the widely held beliefs are not supported by the author

2.
“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.
Answer C

3 .
“Financing the deficit by increasing the money supply should cause inflation only when there is not enough room for economic growth"
Option (E) is a clear word justification of the above excerpt.

4.
“This effect, however, is due to ignorance, not to the deficit itself, and could be lessened by educating financiers on this issue"

The above excerpt clearly indicates that the effect of increased interest rates is due to people not being educated and not because of the deficit itself. Hence option (A)
_________________

When everything seems to be going against you, remember that the airplane takes off against the wind, not with it. - Henry Ford
The Moment You Think About Giving Up, Think Of The Reason Why You Held On So Long
+1 Kudos if you find this post helpful

Board of Directors
User avatar
V
Status: Stepping into my 10 years long dream
Joined: 18 Jul 2015
Posts: 3613
Premium Member Reviews Badge
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 28 Oct 2016, 23:21
1
Time Taken 9 mins. All Correct. Question 2 is tricky. Nice Passage. :)
_________________

My GMAT Story: From V21 to V40
My MBA Journey: My 10 years long MBA Dream
My Secret Hacks: Best way to use GMATClub | Importance of an Error Log!
Verbal Resources: All SC Resources at one place | All CR Resources at one place
Blog: Subscribe to Question of the Day Blog
GMAT Club Inbuilt Error Log Functionality - View More.
New Visa Forum - Ask all your Visa Related Questions - here.
New! Best Reply Functionality on GMAT Club!
Find a bug in the new email templates and get rewarded with 2 weeks of GMATClub Tests for free
Check our new About Us Page here.

Senior Manager
Senior Manager
avatar
P
Joined: 13 Oct 2016
Posts: 286
Concentration: Operations, Leadership
GMAT 1: 600 Q44 V28
GMAT ToolKit User Premium Member
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 21 Oct 2017, 11:04
Time taken - 14 minutes
Took a lot of time for the second and last question.

Got the first 3 right and the last 1 wrong.
_________________

_______________________________________________
If you appreciate the post then please click +1Kudos :)

Senior Manager
Senior Manager
User avatar
G
Joined: 03 Apr 2013
Posts: 278
Location: India
Concentration: Marketing, Finance
GMAT 1: 740 Q50 V41
GPA: 3
GMAT ToolKit User
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 08 Nov 2017, 00:13
1
PiyushK wrote:
NEW PROJECT!: Back to basic => Give your explanation- Get Kudos Point for best explanation

Passage-17 GMATPrep RCs-Collection(Main article)
Conventional wisdom has it that large deficits in the United States budget cause interest rates to rise. Two main arguments are given for this claim. According to the first, as the deficit increases, the government will borrow more to make up for the ensuing shortage of funds. Consequently, it is argued, if both the total supply of credit (money available for borrowing) and the amount of credit sought by nongovernment borrowers remain relatively stable, as is often supposed, then the price of credit (the interest rate) will increase. That this is so is suggested by the basic economic principle that if supplies of a commodity (here, credit) remain fixed and demand for that commodity increases, its price will also increase. 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. It is then argued that financiers will expect the deficit to cause inflation and will raise interest rates, anticipating that because of inflation the money they lend will be worth less when paid back.

Unfortunately for the first argument, it is unreasonable to assume that nongovernment borrowing and the supply of credit will remain relatively stable. Nongovernment borrowing sometimes decreases. When it does, increased government borrowing will not necessarily push up the total demand for credit. Alternatively, when credit availability increases, for example through greater foreign lending to the United States, then interest rates need not rise, even if both private and government borrowing increase.

The second argument is also problematic. Financing the deficit by increasing the money supply should cause inflation only when there is not enough room for economic growth. Currently, there is no reason to expect deficits to cause inflation. However, 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.
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.



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.




3. Which of the following claims concerning the United States government's financing of the deficit does the author make in discussing the second argument?
A. The government will decrease the money supply in times when the government does not have a deficit to finance.
B. The government finances its deficits by increasing the money supply whenever the economy is expanding.
C. As long as the government finances the deficit by borrowing, nongovernment borrowers will pay higher interest rates.
D. The only way for the government to finance its deficits is to increase the money supply without regard for whether such an increase would cause inflation.
E. Inflation should be caused when the government finances the deficit by increasing the money supply only if there is not enough room for economic 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




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
_________________

Spread some love..Like = +1 Kudos :)

GMAT Club Verbal Expert
User avatar
P
Status: GMAT and GRE tutor
Joined: 13 Aug 2009
Posts: 2093
Location: United States
GMAT 1: 780 Q51 V46
GMAT 2: 800 Q51 V51
GRE 1: Q170 V170
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 14 Nov 2017, 19:01
1
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.
_________________

GMAT Club Verbal Expert | GMAT/GRE tutor @ www.gmatninja.com (Now hiring!) | Instagram | Food blog | Notoriously bad at PMs

Beginners' guides to GMAT verbal
Reading Comprehension | Critical Reasoning | Sentence Correction

YouTube LIVE verbal webinars
Series 1: Fundamentals of SC & CR | Series 2: Developing a Winning GMAT Mindset

SC & CR Questions of the Day (QOTDs), featuring expert explanations
All QOTDs | Subscribe via email | RSS

Need an expert reply?
Hit the request verbal experts' reply button -- and please be specific about your question. Feel free to tag @GMATNinja in your post. Priority is always given to official GMAT questions.

Sentence Correction articles & resources
How to go from great (760) to incredible (780) on GMAT SC | That "-ing" Word Probably Isn't a Verb | That "-ed" Word Might Not Be a Verb, Either | No-BS Guide to GMAT Idioms | "Being" is not the enemy | WTF is "that" doing in my sentence?

Reading Comprehension, Critical Reasoning, and other articles & resources
All GMAT Ninja articles on GMAT Club | Using LSAT for GMAT CR & RC |7 reasons why your actual GMAT scores don't match your practice test scores | How to get 4 additional "fake" GMAT Prep tests for $29.99 | Time management on verbal

Intern
Intern
avatar
B
Joined: 11 Sep 2017
Posts: 14
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 26 Jan 2018, 23:41
1
triptigahlot wrote:
My take
1) C
2) A
3) E
4) E

I am not sure on 4th question. It would be great if some one could explain it.

Thanks,
Tripti


Option A states that ' the second argument has some truth to it, though not for the reasons usually supposed'.. which means that rate of interest increase but it is not due to the actual inflation but due to lack of knowledge of financiers that rate is going to increase. which is what is stated in Option A
Manager
Manager
User avatar
S
Status: On the journey of achieving
Affiliations: Senior Manager, CA by profession, CFA(USA) Level 2
Joined: 06 Feb 2016
Posts: 190
Location: India
Concentration: Finance, Finance
GMAT 1: 560 Q44 V21
GPA: 3.82
WE: Other (Commercial Banking)
Reviews Badge CAT Tests
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 05 Sep 2018, 18:05
Time taken 15 min , 3 Correct and 1 Wrong..........Second Question was very tricky........Need to improve my timings
_________________

Never Settle for something less than what you deserve...........

I've failed over and over and over again in my life and that is why I succeed--Michael Jordan
Kudos drives a person to better himself every single time. So Pls give it generously
Wont give up till i hit a 700+

Manager
Manager
User avatar
S
Joined: 30 May 2018
Posts: 85
Concentration: General Management, Marketing
GMAT 1: 750 Q49 V45
GPA: 3.45
WE: Other (Retail)
Re: Conventional wisdom has it that large deficits in the United States bu  [#permalink]

Show Tags

New post 06 Nov 2018, 22:32
Around 9 Mins , all correct.
must improve timings !! Such a passage would be more difficult to comprehend and register during the final performance !
_________________

Kudos if you agree , Comment if you don't !!!

GMAT Club Bot
Re: Conventional wisdom has it that large deficits in the United States bu &nbs [#permalink] 06 Nov 2018, 22:32
Display posts from previous: Sort by

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

  new topic post reply Question banks Downloads My Bookmarks Reviews Important topics  


Copyright

GMAT Club MBA Forum Home| About| Terms and Conditions and Privacy Policy| GMAT Club Rules| Contact| Sitemap

Powered by phpBB © phpBB Group | Emoji artwork provided by EmojiOne

Kindly note that the GMAT® test is a registered trademark of the Graduate Management Admission Council®, and this site has neither been reviewed nor endorsed by GMAC®.