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

Hi skycastle19,

Option D mentions: "explain the underlying causes of a phenomenon". Throughout the passage we can see that the author doesn't seem to be explaining anything. He starts the passage with an old accepted belief and goes on to examine the different perspectives of economists about that belief.
Explaining something would imply that author present his views with certain examples to make the readers understand something, which is not the case in this passage.

Hope this Helps.
Thanks.

Got it. Thanks for the help!

Despite passage stating the word "orthodox", why the answer for Q3 is not (C)?

Hi lakshya14,

Please refer the below reply by expert here:
https://gmatclub.com/forum/is-it-possible-to-decrease-inflation-without-causing-a-recession-and-i-200098.html#p2250291


Let us know if you still have doubts.

Thanks.

one of the best GMAT prep passages I've come across, took 5.34 to read and get answers right. each question is so nuanced. +1 The Economist.

GMATNinja

Could you please help explain question 2 ? I was stuck between Option A and Option D but I don't understand why Option D is wrong.

Thank you!!

Question 2

Question 2 asks us to strengthen the author's conclusion about wage and price controls.

He/she argues that:

• wage and price controls eventually collapse, with the result that "hitherto-repressed inflation resurfaces," AND
• price controls "do damage to the economy’s prospects for long-term growth."

Overall, the author thinks that wage/price controls are a pretty bad idea.

Does (D) strengthen this conclusion?
Hmm. (D) tells us about the believes of the people who advocate the use of wage/price controls -- they think that such controls deal with the underlying causes of inflation.

The author argues against these advocates. He/she thinks that wage controls will lead to pretty bad outcomes. So, does knowing the beliefs of the advocates strengthen the author's argument in any way?

Not that I can see. It provides some insight into the reasoning behind wage/price controls, but doesn't contribute in any way to the argument that these controls are a bad idea.

Contrast that to (A):
This provides great evidence for the author's claim that price controls "do damage to the economy’s prospects for long-term growth."

Eliminate (D), and (A) is the correct answer for question 2.

I hope that helps!

VeritasKarishma - I selected option B for question and I did review answer analysis shared by experts. However, can you explain why option B is incorrect ?

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.

Thanks,
Anshul

We are given:
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.

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.
Not given.

(B) It was possible to control without causing a recession.
We are given that it was controlled by tight monetary and fiscal policies that sharply increased unemployment. We are not given whether it did cause recession or not. In fact, it seems that they did cause recession because we are given "most economists agree that tight monetary and fiscal policies, which cause recessions, are necessary to..."
PanpaliaAnshul

(C) It was easier to control in those countries by applying tight monetary and fiscal policies than it would have been elsewhere.
Not given that in other countries it would have been harder to control.

(D) It was not caused by workers’ and employers’ expectations.
Not given that it was not caused by the “rational expectations” theory. The passage only mentions how it was controlled (by applying tight monetary and fiscal policies)

(E) It would not necessarily be considered high elsewhere.

Correct. Note "(by these countries’ standards)" given next to high inflation suggesting that it wasn't high by the standards of other countries.

Answer (E)

Q2:

As 2 countries may have different economic growth rates, even if one country's growth slows down, it might still be more than the other country.
Does it make option A wrong for Q2 ?

I had a doubt in Option A of Q2(price and wage policy). Option A talks about countries that repeatedly use price and wage controls, whereas author's conclusion doesn't clearly mention about repeated use of price wage controls. Can this be inferred from the passage or is it safe to assume that such policies will be applied repeatedly and not just once during a high inflation economic cycle?
Even though, I understand that this option is best out of all the options, my thought process regarding Option A is that maybe applying the policy repeatedly causes long term damage but we don't know the effect of applying it non-repeatedly (maybe applying this policy after a long time period once/ twice may not result in as much harm). And if author's conclusion doesn't mention the frequency then Option A may not actually support the conclusion.

Question 2

The right answer to this question should "most strengthen the author's conclusion about the use of wage and price controls." More specifically, it should strengthen the idea that wage and price controls ultimately "do damage to the economy’s prospects for long-term growth."

Notice that we aren't looking for something that conclusively proves the author's argument to be correct. Instead, we're looking for the answer choice that "most strengthens" it.

Let's consider (A) again:

This fact suggests that wage and price controls do in fact damage long-term growth. For that reason, (A) is correct.

Of course, it doesn't conclusively prove that wage and price controls damage long-term growth. Maybe other factors, aside from wage and price controls, are actually causing the damage in these countries? In other words, maybe what we're seeing is not a causal effect, but merely a correlation of wage and price controls with lower growth?

So (A) isn't airtight evidence that the author's argument is 100% correct. Nonetheless, it strengthens the conclusion better than any other answer choice.

As you point out, the author doesn't specify the number of times wage and price controls need to be implemented, or how extensively they need to be applied, to slow economic growth. And since the author doesn't give us specifics here, it probably won't help to fill in the gaps ourselves. In fact, doing so runs the risk of distorting the author's position. For instance, we wouldn't want to change the author's argument to "one application of wage and price controls is always sufficient to damage long-term economic growth." That would certainly distort the author's point of view, and throw off our analysis.

Instead, let's stick with author's general point that wage and price controls ultimately "do damage to the economy's prospects for long-term growth." Keeping the author's exact argument in mind, we can conclude that (A), while not conclusive proof, is the best answer of the five we're given.

I hope that helps!

Thanks so much GMATNinja, that helps!

Hi, I wonder why for question 2 B is wrong. Thankks

Question 2 asks the following:

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

Let's find "the author’s conclusion about the use of wage and price controls."

It's the following from near the end of the pasage:

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.

That must be the author's conclusion since every other conclusion presented by the passage is someone else's conclusion.

Now, let's consider choice (B) in question 2.

(B) Countries that have extremely high inflation frequently place very stringent controls on wages and prices in an attempt to decrease the inflation.

Notice that what choice (B) says about what countries do does not support the conclusion that "wage and price controls eventually collapse, the hitherto-repressed inflation resurfaces, and ... a frozen structure of relative prices imposes distortions that do damage to the economy’s prospects."

In other words, since the conclusion is about the outcome of using wage and price controls and choice (B) just describes how "stringent" the controls are, (B) does nothing to support the conclusion.

After all, the fact that the controls are stringent doesn't mean that the controls "eventually collapse" or that "inflation resurfaces" or that "a frozen structure of relative prices imposes distortions that do damage to the economy’s prospects for long-term growth."

Hi GMATNinja,

Can we consider tight monetary and fiscal policies as controversial policies (because some policymakers disagreed and they proposed a new approach)? If so, how do we eliminate choice C?

Thanks.

Question 3

As you point out, the passage discusses monetary and fiscal policies. Nonetheless, there are two good reasons to eliminate (C).

First, while the author discusses tight monetary and fiscal policies, he or she never explicitly supports them. So what exactly does the author say about these policies? Basically, the following three things:

• Most economists support them.
• Some government's policymakers insist they aren't necessary to get out of a recession.
• Relying on other methods to control inflation can "do damage to the economy’s prospects for long-term growth."

Notice that pointing out the negative consequences of failing to use a policy is different than supporting that policy. For that reason, we can't claim that supporting the policy is the primary purpose of the passage.

From another angle: is the policy really controversial? That would also be hard to defend. We know that the "orthodox" view, which is held by "most economists," is that the policies are necessary to control inflation. It's true that some government policy makers disagree, but it would be a stretch to conclude from this that the policy is controversial. The fact that it's an "orthodox" view supported by "most economists" makes it sound pretty uncontroversial.

For both of those reasons, we can eliminate (C).

I hope that helps!