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Is it possible to decrease inflation without causing a recession and i

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Manager
Manager
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B
Joined: 15 Dec 2016
Posts: 62

Kudos [?]: 7 [0], given: 5

Re: Is it possible to decrease inflation without causing a recession and i [#permalink]

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New post 26 Aug 2017, 08:27
plumber250 wrote:
Hi,

It is E because of this phrase:

by these countries’ standards


This is pretty conclusive.

I agree that there is some temptation over E. As the passage never explicitly states that USA/Europe went into recession. However it does imply that they dented their inflation by employing policies that cause recessions. So this is less clear than B and so not correct.

Does that make sense?

James


Experts -- how tough is this passage ? i could not understand the passage map, where this was going ...

Is the passage complicated in your opinion ..

As a native speaker, i still could not understand the main point of this w/o reading it a couple of times (took me 6 mins just to understand this passage :( )

please confirm technical level of passage and/or how to read passages like this better ?

Kudos [?]: 7 [0], given: 5

Director
Director
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S
Joined: 12 Nov 2016
Posts: 794

Kudos [?]: 36 [0], given: 165

Re: Is it possible to decrease inflation without causing a recession and i [#permalink]

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New post 15 Oct 2017, 04:10
anilnandyala wrote:
Is it possible to decrease inflation without causing a recession and its concomitant increase in unemployment? The orthodox answer is “no.” whether they support the “inertia” theory of inflation (that today’s inflation rate is caused by yesterday’s inflation, the state of the economic cycle, and external influences such as import prices) or the “rational expectations” theory (that inflation is caused by workers’ and employers’ expectations, coupled with a lack of credible monetary and fiscal policies), most economists agree that tight monetary and fiscal policies, which cause recessions, are necessary to decelerate inflation. They point out that in the 1980’s, many European countries and the United States conquered high (by these countries’ standards) inflation, but only by applying tight monetary and fiscal policies that sharply increased unemployment. Nevertheless, some governments’ policymakers insist that direct controls on wages and prices, without tight monetary and fiscal policies, can succeed in decreasing inflation. Unfortunately, because this approach fails to deal with the underlying causes of inflation, wage and price controls eventually collapse, the hitherto-repressed inflation resurfaces, and in the meantime, though the policymakers succeed in avoiding a recession, a frozen structure of relative prices imposes distortions that do damage to the economy’s prospects for long-term growth.
1. The passage suggests that the high inflation in the United States and many European countries in the 1980’s differed from inflation elsewhere in which of the following ways?

(A) It fit the rational expectations theory of inflation but not the inertia theory of inflation.
(B) It was possible to control without causing a recession.
(C) It was easier to control in those countries by applying tight monetary and fiscal policies than it would have been elsewhere.
(D) It was not caused by workers’ and employers’ expectations.
(E) It would not necessarily be considered high elsewhere.

2. Which of the following, if true, would most strengthen the author’s conclusion about the use of wage and price controls?

(A) Countries that repeatedly use wage and price controls tend to have lower long-term economic growth rates than do other countries.
(B) Countries that have extremely high inflation frequently place very stringent controls on wages and prices in an attempt to decrease the inflation.
(C) Some countries have found that the use of wage and price controls succeeds in decreasing inflation but also causes a recession.
(D) Policymakers who advocate the use of wage and price controls believe that these controls will deal with the underlying causes of inflation.
(E) Policymakers who advocate the use of wage and price controls are usually more concerned about long-term economic goals than about short-term economic goals.

3. The primary purpose of the passage is to

(A) apply two conventional theories.
(B) examine a generally accepted position
(C) support a controversial policy
(D) explain the underlying causes of a phenomenon
(E) propose an innovative solution



Source: GMATPREP Default Exam Pack


Question 1
This is clearly infer-able from the second set of parentheses.

Question 2
"C' is the trap answer. C presents a fact that would make the use of wage and price control unappealing in general but the passage explicitly states a drawback of tight wage and control policies. A gives information that supports that premise and therefore adds validity to that claim.

Question 3

While A seems tempting, what this passage is really structured to do is thoroughly analyze or "examine" that "orthodox" position. It's basically saying here's why the traditional answer is "no."

Kudos [?]: 36 [0], given: 165

Re: Is it possible to decrease inflation without causing a recession and i   [#permalink] 15 Oct 2017, 04:10

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