1. Which of the following describes the function of the final paragraph?
A. To raise a consideration to add to the understanding of a phenomenonCorrectthe function stated in this choice is indeed the purpose of the final paragraph.
B. To differentiate between different kinds of situations that are mistaken for one anotherIncorrect: Irrelevant
First of all, there is no given information to infer that the given two situations are mistaken for each other. Second of all, the author does differentiate between the two situations but that is done in order to make us understand deflation a bit better.
C. To introduce a discussion on an aspect related to a phenomenon explained earlier in detail Incorrect: Irrelevant
The phenomenon discussed in the earlier part of paragraph is deflation. The aspect being discussed in third paragraph is “dip in prices”. But this aspect is NOT related to deflation.
D. To give information that is not conflicting with the definition of a phenomenon discussed earlierIncorrect: Irrelevant
The information given about the “not necessarily bad price dip” indeed doesn’t conflict with the discussion earlier but the purpose of the author is not to just give this information. It is to give this information to make the reader understand a concept better.
E. To warn against a common generalizationIncorrect: Out Of Scope
The purpose of the author could have been to warn the reader mistaking every price dip as deflation. However, there is no given information to conclude that such a generalization is common.
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.Incorrect: Out Of Scope
There is no given information on this kind of comparative analysis. While pitching them against each other, the author states that deflation is considered a bigger evil than inflation, meaning that the harmful effects of deflation are considered worse than those of inflation. However, this is not sufficient information to conclude that inflation can be beneficial.
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.CorrectThe author mentions clearly in the first paragraph that the decision to delay purchasing adds to the pressure faced by producers that in turn leads to unemployment and even less demand for goods, decreasing prices even further. Hence, we can infer the statement given in choice B.
C. Deflation has little in common with dips in prices that are not substantially caused by decreasing demand.Incorrect: Out Of Scope
In the last paragraph, the author differentiates between a dip caused by factors other than decreasing demand and deflation. On the basis of this information, we cannot conclude that deflation does not have a lot in common with dips not SUBSTANTIALLY caued 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. Incorrect: Out Of Scope
The author states in the first paragraph that the producers resort to production cuts since they have enough stock in their inventory (because of lack of sufficient demand). However, nowhere is it indicated or given that these cuts lead to any kind of increase in prices. In fact, if anything, we are told that the unemployment caused by these cuts leads to further decrease in prices.
E. Whenever supply exceeds current demand, deflation occurs. Incorrect: Out Of Scope
We are told that deflation often occurs in a slowdown when the demand is less compared to the supply. However, this statement does not mean that every time the demand is less, there will be deflation.
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.Incorrect: Opposite
We are told that though the diamond becomes cheaper, it loses its unique selling appeal as a luxury product. So, it is possible that many people may not want to buy it because it is not considered luxurious anymore. In such a situation, the dip in price benefits neither the consumer nor the producer.
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. Incorrect: Partial Scope
Although the buyer who bought the product at a cheaper price might have benefitted from the deal, the producer had to compromise on its profits because of a significant reduction in price. So, the producer, in all likelihood, did not benefit from the situation.
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.Incorrect: Out Of Scope
Although we are told that the producers will realize savings on their cost of production, we are not told whether they lower their prices because of these savings. Hence the benefit to the consumer is uncertain.
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.Incorrect: Opposite
Although the cause of price dip is not a reduction in demand, the effect is production cuts- something that is listed in the passage as a cause for perpetuating deflation. Thus this scenario does not benefit anyone.
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.CorrectIn this situation the benefits of the new technology are reaped both by the producer and by the consumer. Here’s how:
Producer = lower costs due to new technology
Consumer = lower price because of lower costs
4. Which of the following is mentioned in the passage?
A. Most people have a natural dislike for deflation.Incorrect: Opposite
We are told in the first paragraph that most people have a natural dislike towards inflation and they actually like lower/dipping prices.
B. Those people who lose their jobs in deflation keep postponing their purchasing decisions in the hope that prices will decrease further.Incorrect: Out Of Scope
The author does mention the decision to postpone spending and he/she also mentions job cuts due to deflation. However, the author does not relate the two.
C. Large-scale spending by the government is one of the most effective ways to tackle deflation.Incorrect: Out Of Scope
Large-scale is mentioned as one of the ways to prevent and tackle deflation; however, there is no given information on its being one of the most effective ways.
D. The financial market crash of 2008 was caused by deflation in the economy.Incorrect: Out Of Scope
The author talks about the crash with reference to the measures undertaken by the government to tackle deflation in the aftermath of the crash. It does not state that the crash itself was caused by deflation.
E. The effect of sustained price rise is considered less harmful than that of sustained price fall.CorrectThis information is given to us in the first paragraph. The author states that:
Deflation, in fact, is considered to be a bigger evil than inflation,
Deflation = sustained price fall
Inflation = sustained price rise
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Updated on: 30 Aug 2019, 04:21
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(02:53) wrong 
