Many economists believe that a high rate of business savings

Question

Many economists  believe that a high rate of business savings in the United States is a necessary precursor to investment, because business savings, as opposed to personal savings, comprise almost three-quarters of the national savings rate, and the national savings rate heavily influences the overall rate of business investment.

These economists further postulate that real interest rates-the difference between the rates charged by lenders and the inflation rates-will be low when national savings exceed business investment (creating a savings surplus),and high when national savings fall below the level of business investment (creating a savings deficit ).

However, during the 1960's real interest rates were often higher when the national savings surplus was large. Counterintuitive behavior also occurred when real interest rates skyrocketed from 2 percent in 1980 to 7 percent in 1982, even though national savings and investments were roughly equal throughout the period. Clearly, real interest rates respond to influences other than the savings/investment nexus. Indeed, real interest rates may themselves influence swings in the savings and investment rates. As real interest rates shot up after 1979, foreign investors poured capital into the United States, the price of domestic goods increased prohibitively abroad, and the price of foreign-made goods became lower in the United States. As a result, domestic economic activity and the ability of businesses to save and invest were restrained.   1 
 B 
 1. The passage is primarily concerned with

(A) contrasting trends in two historical periods
(B) presenting evidence that calls into question certain beliefs
(C) explaining the reasons for a common phenomenon
(D) criticizing evidence offered in support of a well-respected belief
(E) comparing conflicting interpretations of a theory

2 
 D 
 2. According to the passage, which of the following resulted from foreign investment in the United States after 1979?

(A) An increase in real interest rates
(B) A decrease in the savings rate of certain other nations
(C) An increase in American investment abroad
(D) An increase in the price of American goods abroad
(E) A decrease in the price of domestic goods sold at home

3 
 A 
 3. The author of the passage would be most likely to agree with which of the following statements regarding the economists mentioned in line 1?

(A) Their beliefs are contradicted by certain economic phenomena that occurred in the United States during the 1960's and the 1980's.
(B) Their theory fails to predict under what circumstances the prices of foreign and domestic goods are likely to increase.
(C) They incorrectly identify the factors other than savings and investment rates that affect real interest rates.
(D) Their belief is valid only for the United States economy and not necessarily for other national economies.
(E) They overestimate the impact of the real interest rate on the national savings and investment rates.

4 
 4. The passage suggests that the economists mentioned in the  highlighted text  would have expected which of the following to occur during the 1960's in the United States?

A. Savings and investment rates to be equal in spite of high real interest rates
B. Real interest rates to remain low when the national savings surplus was large
C. Investment rates to remain constant while the national savings rate changed
D. The national economy to suffer a decline as a result of high national savings rates
E. Businesses to be encouraged to save due to high real interest rates

MA · Answer

i agree with your answer for 1, but are you a machine or a human being?

DLMD · Answer

Hong is a super man, damn, I can see him posting in the morning and nite, no matter it's US time or Asia time

HongHu · Answer

Well, I've been sleeping for five hours on average last week, as only late night was when I really have time to sit down and do some studying. But I'm taking the next week off from work, so I would be able to sleep some more now.

Thanks guys.

(ps, not a he either.

I'm in fact an AI.

;))

Thanks guys.

(ps, not a he either.

I'm in fact an AI.

;))

vards · Answer

BDA...All correct... 8 mins 30 secs.

arunrnair · Answer

Got the answer as BDE : Time 5.3 min.

Why is option E wrong. Can any one clarify pls

vards · Answer

Let me try to answer. Firstly,option A correct as the information is clearly and expilcitly given in the passage. For option E,the economists theory is given in the passage as inaccurate as well as inconsistent because there are two scenarios given in which claim made by economists dont work.So,word 'overestimate' is incorrectly used. Hope it helps.

VijayShanker · Answer

Key points:

a.  Many economist belive that business saving influences investment.

b.  Also, good saving helps in reducing the interest rate on lending money repayment.

c.  But facts are opposite; author provides some examples. There is some other factor which influences saving/investments. In fact, interest rate influences saving/investment.

->  Primarily, author talks about what many economist feel and then provides some facts/examples to show they are wrong.

The passage is primarily concerned with
A. contrasting trends in two historical periods
 B. presenting evidence that calls into question certain beliefs 
C. explaining the reasons for a common phenomenon
D. criticizing evidence offered in support of a well-respected belief
E. comparing conflicting interpretations of a theory

-" Clearly, real interest rates respond to influences other than the savings/investment nexus. Indeed, real interest rates may themselves influence swings in the savings and investment rates. "

According to the passage, which of the following resulted from foreign
investment in the United States after 1979?
A. An increase in real interest rates
B. A decrease in the savings rate of certain other nations
C. An increase in American investment abroad
 D. An increase in the price of American goods abroad 
E. A decrease in the price of domestic goods sold at home

-"As real interest rates shot up after 1979, foreign investors poured capital into the United States,  the price of domestic goods increased prohibitively abroad , and the price of foreign-made goods became lower in the United States."

The author of the passage would be most likely to agree with which of the following
statements regarding the economists mentioned in line 1?
 A. Their beliefs are contradicted by certain economic phenomena that occurred in the
United States during the 1960's and the 1980's. 
B. Their theory fails to predict under what circumstances the prices of foreign and domestic
goods are likely to increase.
C. They incorrectly identify the factors other than savings and investment rates that
affect real interest rates.
D. Their belief is valid only for the United States economy and not necessarily for other
national economies.
E. They overestimate the impact of the real interest rate on the national savings
and investment rates.

- This is the main idea.

Kritesh · Answer

Time taken - 6 mins 30 seconds Got all the answers correct.

Skywalker18 · Answer

Total 6 mins 40 seconds , including 3 mins 20 seconds to read .

1.The passage is primarily concerned with
B. presenting evidence that calls into question certain beliefs - Correct - the passage presents evidence to question the belief of many economists

2. According to the passage, which of the following resulted from foreign investment in the United States after 1979?
D. An increase in the price of American goods abroad - As real interest rates shot up after 1979, foreign investors poured capital into the United States,  the price of domestic goods increased prohibitively abroad , and the price of foreign-made goods became lower in the United States.

3.The author of the passage would be most likely to agree with which of the following statements regarding the economists mentioned in line 1?
A. Their beliefs are contradicted by certain economic phenomena that occurred in the United States during the 1960's and the 1980's. - Correct

AD2GMAT · Answer

I did a silly mistake in question number 2 - I marked choice A which is a correct inference, but not caused by "the foreign investment." Silly me.
Takeaway - please read the question very carefully and completely, and only then answer the question.

AD2GMAT · Answer

"As real interest rates shot up after 1979, foreign investors poured capital into the United States, the price of  domestic  goods increased prohibitively abroad, and the price of foreign-made goods became lower in the United States."
-------
In this sentence I guessed that "domestic" doesn't have a clear reference, and hence it is a dis-tractor, but later found that in that COMPLETE sentence it was referred clearly. Take Away - read the complete sentence to infer anything.

honneeey · Answer

Hi  workout  ,
I narrowed it down to B and D but ended up selecting D for question no. 1

1. The passage is primarily concerned with

(A) contrasting trends in two historical periods
(B)  presenting evidence that calls into question certain beliefs 
(C) explaining the reasons for a common phenomenon
(D)  criticizing evidence offered in support of a well-respected belief 
(E) comparing conflicting interpretations of a theory

B

I believe that the author doesnt call any belief into question rather he is criticizing the belief by supporting it with and evidence.

Where am i wrong?

aragonn · Answer

P1- Economists believes
P2- Further beliefs
P3- Para start with however, some contrast for above belief

Main point - Some belief of economists are resented and some evidence contradicting to it is presented.

1. The passage is primarily concerned with

(A) contrasting trends in two historical periods --- NO. Contrast is not there and historical period is also off.
(B) presenting evidence that calls into question certain beliefs --- The belief is that when savings exceed business investment then the interest rate is low and vice versa. "Clearly, real interest rates respond to influences other than the savings/investment nexus. " --- This one calls above into question. 
(C) explaining the reasons for a common phenomenon -- Full passage is not covered in it.
(D) criticizing evidence offered in support of a well-respected belief --- No for sure.
(E) comparing conflicting interpretations of a theory ---- interpretations does not seem that way.

------------------------------------------------
2. According to the passage, which of the following resulted from foreign investment in the United States after 1979?
Lines to read - As real interest rates shot up after 1979, foreign investors poured capital into the United States, the price of domestic goods increased prohibitively abroad, and the price of foreign-made goods became lower in the United States. Clearly D is the answer.

(D) An increase in the price of American goods abroad

------------------------------------------------

3. The author of the passage would be most likely to agree with which of the following statements regarding the economists mentioned in line 1?
Answer A undeniably correct As time line matches.

(A) Their beliefs are contradicted by certain economic phenomena that occurred in the United States during the 1960's and the 1980's.

nigina93 · Answer

BDA, time taken 3.37 including reading passage

ShankSouljaBoi · Answer

In q 1. how can we choose *beliefs* ???? There is just one belief that High business saving rate increases investment. Why the 's ? I rejected B for the same. Also, on one of the RC's on GMATCLUB I encountered a similar trick, so this time i ditched this option. But, AlAS !!!!!!!

GMATPanther · Answer

In q3 I was confused between c and e.

Can someone explain why c is wrong too ? Ty

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Smitc007 · Answer

This is the evidence provided by the author :-

However, Author is not criticizing this evidence anywhere in the passage.

Hope it helps

mSKR · Answer

3. The author of the passage would be most likely to agree with which of the following statements regarding the economists mentioned in line 1?

(A) Their beliefs are contradicted by certain economic phenomena that occurred in the United States during the 1960's and the 1980's.
(B) Their theory fails to predict under what circumstances the prices of foreign and domestic goods are likely to increase.
(C) They incorrectly identify the factors other than savings and investment rates that affect real interest rates.
(D) Their belief is valid only for the United States economy and not necessarily for other national economies.
(E) They overestimate the impact of the real interest rate on the national savings and investment rates.

Why E can't be answer for Question =3 ?

i rejected A because their belief was high rate of business savings in the United States is a necessary precursor to investment. They didn't take into account other factors that could vary rate. So it means they over emphasized the impact of real interest rate on the national savings and investment rates.

GMATNinja   VeritasKarishma

oussamasaber · Answer

Got all answers correct in 6min including 3min20 to read the passage.

Posted from my mobile device

Many economists believe that a high rate of business savings

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GMAT Reading Comprehension (RC) Questions

Many economists believe that a high rate of business savings

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