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Irrespective of the general state of the economy

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Irrespective of the general state of the economy  [#permalink]

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New post 29 Mar 2018, 20:57
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27% (01:07) correct 73% (01:46) wrong based on 55

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82% (00:58) correct 18% (01:05) wrong based on 55

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Irrespective of the general state of the economy, paying less for the same thing appeals to most consumers, who seem to have an intuitive dislike for inflation. But much as we may like to pay less, a sustained decline in prices, deflation, may not be in our best interests. Deflation, in fact, is considered to be a bigger evil than inflation, and evokes strong action by policymakers who would try everything possible to prop up prices. Deflation often results from a slowdown in which reduction in demand vis-à-vis supply causes prices to dip. With a sharp decline in prices, consumers tend to postpone purchases in the belief that prices will head further lower. This adds to the pressure on businesses, which in addition to a fall in prices also see an accumulation of inventory. Production cuts are hence resorted to, resulting in factory closures and consequent layoffs or salary cuts. With unemployment increasing, income levels in the economy fall, leading to further cuts in consumer spending and more pressure on prices. A vicious cycle emerges; the cascade effect is felt across sectors, and the economy goes into a defeatist mode.

To prevent deflations and to tackle the downward spiral caused by them, governments resort to large-scale spending, undertaking massive projects to increase employment, incomes, and prices and pumping in huge sums of money to propel demand. For instance, in the aftermath of the financial market crash in 2008, the US government undertook big-ticket stimulus measures and QE (quantitative easing) to revive the economy.

However, not all dips in prices are bad. A fall in prices of goods and services due to technological innovations and increased competition could actually benefit both the consumers and the producers. Such a situation is very different from deflation, which affects prices across the economy on a sustained basis (mainly due to decreasing demand or liquidity problems) and which should indeed be considered a red flag.

1.Which of the following describes the function of the final paragraph?
A. To raise a consideration to add to the understanding of a phenomenon
B.To differentiate between different kinds of situations that are mistaken for one another
C.To introduce a discussion on an aspect related to a phenomenon explained earlier in detail
D.To give information that is not conflicting with the definition of a phenomenon discussed earlier
E.To warn against a common generalization


2. Which of the following statements would the author most likely agree with?
A.Although inflation can be beneficial for the economy deflation cannot be.
B.The decision to buy a product later in the hope of benefitting from a further price reduction is part of the cyclical chain of events that breeds deflation.
C.Deflation has little in common with dips in prices that are not substantially caused by decreasing demand.
D.Production cuts undertaken due to accumulated inventory help producers deal with an excess supply, leading to a momentary increase in prices.
E.Whenever supply exceeds current demand, deflation occurs.


3.As per the passage, which of the following would most likely be considered a dip in prices beneficial to both the consumer and the producer?
A.Because of a breakthrough in diamond mining, the price of the diamond dips, with it becoming affordable for more people but losing its unique selling appeal as a luxury item.
B.Because of the cancellation of an order, the producer reduces the price of the goods in stock considerably and sells them to another buyer.
C.Because of a change in policy, producers can now procure raw materials for producing garments at cheaper prices from nearby countries and hence save on their cost of production.
D.Because of an increasing competition from cheaply produced and imported goods, the local producers reduce the prices of their goods to sell off their existing stock at initiate production cuts.
E.Because of a new technology, the manufacturers of personal computers are able to reduce their cost of production and pass these savings to the consumers as well by lowering the prices.


4.Which of the following is mentioned in the passage?
A.Most people have a natural dislike for deflation.
B.Those people who lose their jobs in deflation keep postponing their purchasing decisions in the hope that prices will decrease further.
C.Large-scale spending by the government is one of the most effective ways to tackle deflation.
D.The financial market crash of 2008 was caused by deflation in the economy.
E.The effect of sustained price rise is considered less harmful than that of sustained price fall.


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Re: Irrespective of the general state of the economy  [#permalink]

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New post 31 Mar 2018, 09:43
Can Anyone explain ques 1 . I got answer as E.
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Re: Irrespective of the general state of the economy  [#permalink]

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New post 31 Mar 2018, 13:33
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narayandutta wrote:
Can Anyone explain ques 1 . I got answer as E.

narayandutta

Warn would be too strong a word to describe the last paragraph. The author is simply providing an extra piece of information which is the flip side of what he provided in the previous para. He is doing that to prevent people from generalizing fall in prices as bad
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Re: Irrespective of the general state of the economy  [#permalink]

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New post 01 Apr 2018, 18:11
Can someone please explain why option D is incorrect for Q1?
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Re: Irrespective of the general state of the economy  [#permalink]

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New post 02 Apr 2018, 00:23
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csaluja wrote:
Can someone please explain why option D is incorrect for Q1?


1.Which of the following describes the function of the final paragraph?
A. To raise a consideration to add to the understanding of a phenomenon
B.To differentiate between different kinds of situations that are mistaken for one another
C.To introduce a discussion on an aspect related to a phenomenon explained earlier in detail
D.To give information that is not conflicting with the definition of a phenomenon discussed earlier
E.To warn against a common generalization

Final paragraph starts with a contrast marker(by author)"However, not all dips in prices are bad.." and then it explains the a particular situation and fosters the same (..Such a situation...) and ends with deflation is considered a red flag..(which modifier modifies the previous noun deflation).
Now lets evaluate..
1.(raise a consideration ie by showing the contrast..that this should not be bad after all from the previous paragraph..) OK..lets keep it
2.To differentiate...(OK dif btw general accepted position about dips. ) but after reading further..situations that are mistaken for one another(nothing is mistaken..author has made his judgement.) OUT
3. introduce a discussion(no discussion is introduced) OUT.
4.To give information that is not conflicting...(when the starting marker is However contrast is made)..OUT
5.To Warn.. he is just describing an exception (situation ).OUT
Re: Irrespective of the general state of the economy &nbs [#permalink] 02 Apr 2018, 00:23
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