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# GMATPREP ChallengeQ -Many people believe that because wages

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GMATPREP ChallengeQ -Many people believe that because wages  [#permalink]

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Updated on: 03 Aug 2019, 22:48
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Passage-11 GMATPrep RCs-Collection (Main article)

Many people believe that because wages are lower in developing countries than in developed countries, competition from developing countries in goods traded internationally will soon eliminate large numbers of jobs in developed countries. Currently, developed countries' advanced technology results in higher productivity, which accounts for their higher wages. Advanced technology is being transferred ever more speedily across borders, but even with the latest technology, productivity and wages in developing countries will remain lower than in developed countries for many years because developed countries have better infrastructure and better-educated workers. When productivity in a developing country does catch up, experience suggests that wages there will rise. Some individual firms in developing countries have raised their productivity but kept their wages (which are influenced by average productivity in the country's economy) low. However, in a developing country's economy as a whole, productivity improvements in goods traded internationally are likely to cause an increase in wages. Furthermore, if wages are not allowed to rise, the value of the country's currency will appreciate, which (from the developed countries' point of view) is the equivalent of increased wages in the developing country. And although in the past a few countries have deliberately kept their currencies undervalued, that is now much harder to do in a world where capital moves more freely.
1. The passage suggests that which of the following would best explain why, in a developing country, some firms that have raised their productivity continue to pay low wages?

(A) Wages are influenced by the extent to which productivity increases are based on the latest technology.
(B) Wages are influenced by the extent to which labor unions have organized the country's workers.
(C) Wages are not determined by productivity improvements in goods traded internationally.
(D) The average productivity of the workers in the country has not risen.
(E) The education level of the workers in the country determines wages.

2. The primary purpose of the passage is to

(A) identify the origin of a common misconception
(B) discuss the implications of a generally accepted principle
(C) present information relevant in evaluating a commonly held belief
(D) defend a controversial assertion against a variety of counterarguments
(E) explain under what circumstances a well-known phenomenon occurs

3. The passage suggests that if the movement of capital in the world were restricted, which of the following would be likely?

(A) Advanced technology could move more quickly from developed countries to developing countries.
(B) Developed countries could compete more effectively for jobs with developing countries.
(C) A country's average wages could increase without significantly increasing the sophistication of its technology or the value of its currency.
(D) A country's productivity could increase without significantly increasing the value of its currency.
(E) Workers could obtain higher wages by increasing their productivity.

When productivity in a developing country does catch up, experience suggests that wages there will rise. Some individual firms in developing countries have raised their productivity but kept their wages (which are influenced by average productivity in the country's economy) low. However, in a developing country's economy as a whole, productivity improvements in goods traded internationally are likely to cause an increase in wages. Furthermore, if wages are not allowed to rise, the value of the country's currency will appreciate, which (from the developed countries' point of view) is the equivalent of increased wages in the developing country. And although in the past a few countries have deliberately kept their currencies undervalued, that is now much harder to do in a world where capital moves more freely.

Originally posted by PiyushK on 12 Aug 2014, 03:45.
Last edited by SajjadAhmad on 03 Aug 2019, 22:48, edited 10 times in total.
Updated complete topic (65).
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Re: GMATPREP ChallengeQ -Many people believe that because wages  [#permalink]

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05 Jul 2017, 20:21
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VidyaIyengar wrote:
Wanted an explanation for the question "The passage suggests that if the movement of cpital in the world were restricted, which of the following would be likely ?"

Quote:
3. The passage suggests that if the movement of capital in the world were restricted, which of the following would be likely?
A. Advanced technology could move more quickly from developed countries to developing countries.
B. Developed countries could compete more effectively for jobs with developing countries.
C. A country's average wages could increase without significantly increasing the sophistication of its technology or the value of its currency.
D. A country's productivity could increase without significantly increasing the value of its currency.
E. Workers could obtain higher wages by increasing their productivity.

"In a developing country's economy as a whole, productivity improvements in goods traded internationally are likely to cause an increase in wages." This implies that an increase in productivity should lead to an increase in wages. But "if wages are not allowed to rise, the value of the country's currency will appreciate." Thus, if wages do not rise as productivity increases, the value of the country's currency should grow.

"In the past a few countries have deliberately kept their currencies undervalued" (that is, prevented the value of the country's currency from appreciating). However, this practice "is now much harder to do in a world where capital moves more freely." In other words, it is now much harder for a country to deliberately keep its currency undervalued because capital now moves more freely in the world. We can infer from this statement that "if the movement of capital in the world were restricted," that would make it easier for a country to deliberately keep its currency undervalued, even as productivity increases.

Thus, "if the movement of capital in the world were restricted", it is likely that a "country's productivity could increase without significantly increasing the value of its currency." (D) is the best option.

This passage is also discussed in the following thread: https://gmatclub.com/forum/many-people- ... fl=similar
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Re: GMATPREP ChallengeQ -Many people believe that because wages  [#permalink]

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12 Aug 2014, 05:15
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1. The passage suggests that which of the following would best explain why, in a developing country, some firms that have raised their productivity continue to pay low wages?
A. Wages are influenced by the extent to which productivity increases are based on the latest technology. We are looking for avg productivity of the whole country.
B. Wages are influenced by the extent to which labor unions have organized the country's workers. No mention of labour unions in the passage
C. Wages are not determined by productivity improvements in goods traded internationally. We are looking for avg productivity of the whole country.
D. The average productivity of the workers in the country has not risen. Bingo. That is what the bracketed part in the 12th line says.
E. The education level of the workers in the country determines wages. We are looking for avg productivity of the whole country.

2. The primary purpose of the passage is to
A. identify the origin of a common misconception Not discussing the "origin". Its more of a debunking of a misconception.
B. discuss the implications of a generally accepted principle Passages challenges the principle.
C. present information relevant in evaluating a commonly held belief Bingo.
D. defend a controversial assertion against a variety of counterarguments It takes an popular assertion and presents various counterarguments to debunk that assertion
E. explain under what circumstances a well-known phenomenon occurs Doesnt say anything about circumstances about a phenomenon. It presents cases when the "phenomenon" may not hold.

3. The passage suggests that if the movement of capital in the world were restricted, which of the following would be likely?
A. Advanced technology could move more quickly from developed countries to developing countries. Advanced technology might be better adopted in the developing country.
B. Developed countries could compete more effectively for jobs with developing countries. It doesnt say that
C. A country's average wages could increase without significantly increasing the sophistication of its technology or the value of its currency. It has to increase its sophistication
D. A country's productivity could increase without significantly increasing the value of its currency.Productivity=Avg wages*Currency Value. To increase productivity and keeping one constant, we need to increase the other factor. The passage seems to suggest that developing countries like to undervalue their currencies. So productivity can only be achieved by increasing wages. Close call. Lets put this aside for the moment. Doesnt sound exciting
E. Workers could obtain higher wages by increasing their productivity. Bingo. This can only be done by increasing avg wages if the country wants to keep the currency low (this can happen if the capital is restricted.
##### General Discussion
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Re: GMATPREP ChallengeQ -Many people believe that because wages  [#permalink]

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Updated on: 30 Apr 2018, 18:47
4
Updated time: Time taken 5 mins.

2. The primary purpose of the passage is to
C. present information relevant in evaluating a commonly held belief
"Many people believe that because wages are lower in developing countries than in developed countries, competition from developing countries in goods traded internationally will soon eliminate large numbers of jobs in developed countries.
blah blah
When productivity in a developing country does catch up, experience suggests that wages there will rise.
"

3. The passage suggests that if the movement of capital in the world were restricted, which of the following would be likely?
D. A country's productivity could increase without significantly increasing the value of its currency.
"if wages are not allowed to rise, the value of the country's currency will appreciate, which (from the developed countries' point of view) is the equivalent of increased wages in the developing country. And although in the past a few countries have deliberately kept their currencies undervalued, that is now much harder to do in a world where capital moves more freely."

Having tough time with Q1.
Regards.

Originally posted by JarvisR on 12 Aug 2014, 04:36.
Last edited by hazelnut on 30 Apr 2018, 18:47, edited 3 times in total.
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Re: GMATPREP ChallengeQ -Many people believe that because wages  [#permalink]

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17 May 2016, 23:07
3
The passage starts with a claim and then it goes on to explain by providing details that the way it's thought it's not actually so. And that's the primary purpose of the passage. Now let's dive in to the options

2. The primary purpose of the passage is to
A. identify the origin of a common misconception --> There's no discussion of some origin or the root cause of anything. Chuck it out!
B. discuss the implications of a generally accepted principle --> There are no deductions or implications rather the passage explains details about a commonly held belief (evident from the first line : "many people believe that because wages..."). Chuck it out !
C. present information relevant in evaluating a commonly held belief --> Perfect ! This option shows that passage tries to evaluate a commonly held belief by presenting details/explanations. Answer
D. defend a controversial assertion against a variety of counterarguments --> There is no controversy discussed as such. Chuck it out !
E. explain under what circumstances a well-known phenomenon occurs --> A well known phenomenon ? Simply chuck it out !

To answer the below question we need to understand the lines where the same has been mentioned.
"However, in a developing country's economy as a whole, productivity improvements in goods traded internationally are likely to cause an increase in wages. Furthermore, if wages are not allowed to rise, the value of the country's currency will appreciate, which (from the developed countries' point of view) is the equivalent of increased wages in the developing country. And although in the past a few countries have deliberately kept their currencies undervalued, that is now much harder to do in a world where capital moves more freely."

So basically it says in a freely moving capital, if productivity increases, then wages increases, and subsequently currency value will appreciate. THe question asks us what happens if the capital is not freely movable ? Simple the question of currency appreciation/ depreciation is out of the picture. Productivity could increase without the significant increase in currency value.

3. The passage suggests that if the movement of capital in the world were restricted, which of the following would be likely?
A. Advanced technology could move more quickly from developed countries to developing countries. --> advanced technology is not discussed in the context of restricting/freely flowing capital
B. Developed countries could compete more effectively for jobs with developing countries. --> same here, no mention of jobs.
C. A country's average wages could increase without significantly increasing the sophistication of its technology or the value of its currency. --> to some extent correct but then the term productivity is missing and also the sophistication of the technology is not discussed in the context of restricting /freely flowing capital.
D. A country's productivity could increase without significantly increasing the value of its currency. --> Bang on! This is what exactly we can deduce.
E. Workers could obtain higher wages by increasing their productivity. --> higher wages vs productivity exists even when currency appreciation is discussed.
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Re: GMATPREP ChallengeQ -Many people believe that because wages  [#permalink]

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19 Aug 2016, 05:53
Took 6 mins , 30 seconds , including 1 mins 40 seconds to read the passage
-The author is concerned with providing us information which will helps us evaluate whether a commonly held belief is true
-He also talks about how productivity and economy are inter related in developing and developed countries

1. "Some individual firms in developing countries have raised their productivity but kept their wages (which are influenced by average productivity in the country's economy) low "

2.
Option (A) – Incorrect – the author does not explicitly state that there is a misconception. He is merely seeking to provide information
Option (B)- Incorrect- The author is not discussing the implications but rather providing information
Option (C) – Correct – This is an exact purpose of the passage
Option (D)- Incorrect – No counter arguments are presented in the passage
Option (E)- Incorrect – The author is not claiming that a certain phenomenon occurs because of certain circumstances but rather providing information on evaluating that phenomenon

3.
"And although in the past a few countries have deliberately kept their currencies undervalued, that is now much harder to do in a world where capital moves more freely."
The above suggests that if the movement of capital were restricted, the currencies would continue to be undervalued while at the same time ensuring that productivity is still increasing. Hence option(D) is the right answer.
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Re: GMATPREP ChallengeQ -Many people believe that because wages  [#permalink]

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01 Jul 2017, 01:17
Wanted an explanation for the question "The passage suggests that if the movement of cpital in the world were restricted, which of the following would be likely ?"
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Re: GMATPREP ChallengeQ -Many people believe that because wages  [#permalink]

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24 Jul 2017, 13:35
AmoyV wrote:
1. The passage suggests that which of the following would best explain why, in a developing country, some firms that have raised their productivity continue to pay low wages?
A. Wages are influenced by the extent to which productivity increases are based on the latest technology. We are looking for avg productivity of the whole country.
B. Wages are influenced by the extent to which labor unions have organized the country's workers. No mention of labour unions in the passage
C. Wages are not determined by productivity improvements in goods traded internationally. We are looking for avg productivity of the whole country.
D. The average productivity of the workers in the country has not risen. Bingo. That is what the bracketed part in the 12th line says.
E. The education level of the workers in the country determines wages. We are looking for avg productivity of the whole country.

2. The primary purpose of the passage is to
A. identify the origin of a common misconception Not discussing the "origin". Its more of a debunking of a misconception.
B. discuss the implications of a generally accepted principle Passages challenges the principle.
C. present information relevant in evaluating a commonly held belief Bingo.
D. defend a controversial assertion against a variety of counterarguments It takes an popular assertion and presents various counterarguments to debunk that assertion
E. explain under what circumstances a well-known phenomenon occurs Doesnt say anything about circumstances about a phenomenon. It presents cases when the "phenomenon" may not hold.

3. The passage suggests that if the movement of capital in the world were restricted, which of the following would be likely?
A. Advanced technology could move more quickly from developed countries to developing countries. Advanced technology might be better adopted in the developing country.
B. Developed countries could compete more effectively for jobs with developing countries. It doesnt say that
C. A country's average wages could increase without significantly increasing the sophistication of its technology or the value of its currency. It has to increase its sophistication
D. A country's productivity could increase without significantly increasing the value of its currency.Productivity=Avg wages*Currency Value. To increase productivity and keeping one constant, we need to increase the other factor. The passage seems to suggest that developing countries like to undervalue their currencies. So productivity can only be achieved by increasing wages. Close call. Lets put this aside for the moment. Doesnt sound exciting
E. Workers could obtain higher wages by increasing their productivity. Bingo. This can only be done by increasing avg wages if the country wants to keep the currency low (this can happen if the capital is restricted.

With regards to Q1, I am still not clear why D is right - where was the average productivity element deduced? Do request you to put out your understanding of ques/ method of identifying the inference of D. Thank you!
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Re: GMATPREP ChallengeQ -Many people believe that because wages  [#permalink]

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12 Oct 2017, 06:22
GMATNinja GMATNinjaTwo

GMATNinjaTwo

Sir,

"Developed countries could compete more effectively for jobs with developing countries."

if capital movement is restricted in developing countries, the productivity will not be able to increase value of the currency and hence will lead to an increase in wages.
now, if the wages in developing countries are increased, the developed countries will become more effective in competing, as the one of the reason why developing countries were gaining jobs was because of low wages. so b can be a contender.

"Workers could obtain higher wages by increasing their productivity."

if currency is kept undervalued the productivity increase has to cause an increase in wages. so why is E wrong.
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Re: GMATPREP ChallengeQ -Many people believe that because wages  [#permalink]

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19 Oct 2017, 20:28
zaidq1 wrote:
GMATNinja
Sir,

"Developed countries could compete more effectively for jobs with developing countries."

if capital movement is restricted in developing countries, the productivity will not be able to increase value of the currency and hence will lead to an increase in wages.
now, if the wages in developing countries are increased, the developed countries will become more effective in competing, as the one of the reason why developing countries were gaining jobs was because of low wages. so b can be a contender.

"Workers could obtain higher wages by increasing their productivity."

if currency is kept undervalued the productivity increase has to cause an increase in wages. so why is E wrong.

Quote:
if capital movement is restricted in developing countries, the productivity will not be able to increase value of the currency and hence will lead to an increase in wages.
This is not necessarily true. We are told that IF we have productivity improvements, we will likely see an increase in wages. That still leaves the possibility that we could have productivity improvements without an increase in wages. Now, if we go with the likely scenario where wages should increase BUT the wages are not allowed to rise, THEN the value of the country's currency will appreciate, unless the country manages to deliberately undervalue their currency. But deliberately undervaluing currency is hard to do because capital moves more freely.

So if capital were restricted and could NOT move freely, it would be hard for a country to deliberately undervalue its currency. This means that we could have productivity improvements WITHOUT an increase in wages and also WITHOUT an appreciate in the value of the country's currency, which is exactly what choice (D) says.

As for choice (B), just because we have productivity improvements and NO increase in the value of the currency does not mean that wages will increase. Theoretically, if wages were not allowed to rise and the movement of capital were restricted, we could have productivity improvements with neither an increase in wages nor an appreciation in the value of the currency.

Quote:
if currency is kept undervalued the productivity increase has to cause an increase in wages
This logic is not valid for the same reason, so choice (E) should also be eliminated.

Refer to the following portions further supporting choice (D):

• "In a developing country's economy as a whole, productivity improvements in goods traded internationally are likely to cause an increase in wages." - Note that this does not say that wages will DEFINITELY increase with productivity improvements.
• If the productivity improvements should cause wages to increase BUT "wages are not allowed to rise, the value of the country's currency will appreciate, which (from the developed countries' point of view) is the equivalent of increased wages in the developing country." - This portion refers to the LIKELY scenario in which wages should increase with productivity. If, in that case, wages are NOT allowed to rise, the value of the currency will appreciate.
• Countries can try to deliberately undervalue their currency, but "that is now much harder to do in a world where capital moves more freely."

I hope that helps!
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Re: GMATPREP ChallengeQ -Many people believe that because wages  [#permalink]

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19 Oct 2017, 20:31
With regards to Q1, I am still not clear why D is right - where was the average productivity element deduced? Do request you to put out your understanding of ques/ method of identifying the inference of D. Thank you!

Quote:
1. The passage suggests that which of the following would best explain why, in a developing country, some firms that have raised their productivity continue to pay low wages?
A. Wages are influenced by the extent to which productivity increases are based on the latest technology.
B. Wages are influenced by the extent to which labor unions have organized the country's workers.
C. Wages are not determined by productivity improvements in goods traded internationally.
D. The average productivity of the workers in the country has not risen.
E. The education level of the workers in the country determines wages.

The key to this question is in this chunk of the passage:

"Some individual firms in developing countries have raised their productivity but kept their wages (which are influenced by average productivity in the country's economy) low."

This tells us that wages are influenced by average productivity in a country's economy. So if one firm has raised its productivity but, on average, most other firms in the country have low productivity, wages might remain low even at the firm that has raised its productivity.

In other words, if one firm raises its productivity but the average productivity of the workers in the country has not risen, then that one firm could continue to pay low wages. This is exactly what choice (D) says.

I hope that helps!
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Re: GMATPREP ChallengeQ -Many people believe that because wages  [#permalink]

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23 Oct 2018, 06:59
5:11.
Got 2/3.

I couldn't understand the first answer.
"Some individual firms in developing countries have raised their productivity but kept their wages low".
This means that their productivity has increased.Right?
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Re: GMATPREP ChallengeQ -Many people believe that because wages  [#permalink]

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02 Nov 2018, 19:40
Micky1005 wrote:
5:11.
Got 2/3.

I couldn't understand the first answer.
"Some individual firms in developing countries have raised their productivity but kept their wages low".
This means that their productivity has increased.Right?

Yes, that's right. I hope our earlier post explaining why choice (D) is correct is helpful as well.
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Re: GMATPREP ChallengeQ -Many people believe that because wages  [#permalink]

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03 Feb 2019, 20:48
Mick1005 wrote:
5:11.
Got 2/3.

I couldn't understand the first answer.
"Some individual firms in developing countries have raised their productivity but kept their wages low".
This means that their productivity has increased.Right?

The passage suggests that if the movement of capital in the world were restricted, which of the following would be likely?
A. Advanced technology could move more quickly from developed countries to developing countries.
B. Developed countries could compete more effectively for jobs with developing countries.
C. A country's average wages could increase without significantly increasing the sophistication of its technology or the value of its currency.
D. A country's productivity could increase without significantly increasing the value of its currency.
E. Workers could obtain higher wages by increasing their productivity

Now lets see fro the passage since the movement of capital in the capital is NOT restricted these days so it leads to wage rise.However if we dont allow the wages tp rise significantly then this will lead to appreaciation in currency which is equal to wage rise.(PPP understood-Purchase Power Parity)

Notice..The option doesnt say reducing value of cuurency or not increasing..It mentions the word SIGNIFICANTLY very smartly..and uses the word COULD.
So this definitely could be a possibility that if movement of capital is restricted it leads to somewhat increase in productivity and approaciation of currency.

I guess the catch is COULD and SIGNIFICANT words here which renders option D as a possibility.

E.Option E cannot not necessarily be true.This cannot be true untill and unless it is true for the aggregate of the country as a whole.The passage already cites
cases where few firms had increased productivity but it didn't lead to overall increase in wages.

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Re: GMATPREP ChallengeQ -Many people believe that because wages  [#permalink]

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04 Feb 2020, 16:54
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Re: GMATPREP ChallengeQ -Many people believe that because wages   [#permalink] 04 Feb 2020, 16:54
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