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# Many economists believe that a high rate of business savings

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Senior Manager
Joined: 07 Nov 2004
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04 Feb 2005, 16:15
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Question 1
00:00

Question Stats:

76% (02:25) correct 24% (00:31) wrong based on 55

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Question 2
00:00

Question Stats:

86% (01:26) correct 14% (00:50) wrong based on 50

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Question 3
00:00

Question Stats:

70% (01:43) correct 30% (00:29) wrong based on 50

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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.
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

[Reveal] Spoiler:
B

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

[Reveal] Spoiler:
D

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.

[Reveal] Spoiler:
A

[Reveal] Spoiler: Question #1 OA
[Reveal] Spoiler: Question #2 OA
[Reveal] Spoiler: Question #3 OA

Last edited by JarvisR on 02 Jul 2015, 02:21, edited 1 time in total.
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Re: Many economists believe that a high rate of business savings [#permalink]

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04 Feb 2005, 22:52
1. E
2. D
3. A
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Re: Many economists believe that a high rate of business savings [#permalink]

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04 Feb 2005, 22:57
BDA
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Re: Many economists believe that a high rate of business savings [#permalink]

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04 Feb 2005, 23:30
2
KUDOS
HongHu wrote:
BDA

i agree with your answer for 1, but are you a machine or a human being?
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Re: Many economists believe that a high rate of business savings [#permalink]

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05 Feb 2005, 00:27
1
KUDOS
MA wrote:
HongHu wrote:
BDA

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

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
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Re: Many economists believe that a high rate of business savings [#permalink]

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05 Feb 2005, 21:27
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. ;))
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Re: Many economists believe that a high rate of business savings [#permalink]

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28 Jan 2015, 23:15
BDA...All correct... 8 mins 30 secs.
_________________

ITS NOT OVER , UNTIL I WIN ! I CAN, AND I WILL .PERIOD.

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Re: Many economists believe that a high rate of business savings [#permalink]

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29 Jan 2015, 00:34
Got the answer as BDE : Time 5.3 min.

Why is option E wrong. Can any one clarify pls
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Re: Many economists believe that a high rate of business savings [#permalink]

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29 Jan 2015, 01:47
1
KUDOS
arunrnair wrote:
Got the answer as BDE : Time 5.3 min.

Why is option E wrong. Can any one clarify pls

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.
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Re: Many economists believe that a high rate of business savings [#permalink]

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24 Feb 2017, 04:55
Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

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Re: Many economists believe that a high rate of business savings   [#permalink] 24 Feb 2017, 04:55
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