Once the largest creditor nation, the United States is now the worlds

Question

Once the largest creditor nation, the United States is now the world’s largest debtor. Although no one doubts that the United States has increased its dependence on foreign capital, what all this borrowing tells us about the American economy is a matter of dispute. Some economists liken the United States to a rising corporation, attracting investments from other corporations eager to share in spectacular profits. According to this image, far from being a sign of decline, foreign investment in the United States is a sign of success. While this image is appealing, if the United States were truly a rising corporation most foreign investment would presumably be direct investment, which gives the investor some ownership, the better to profit from the strength of American business; however, most foreign investment in the United States is portfolio investment, which confers no direct ownership. Other economists compare the United States to a declining corporation; according to this image the United States, no longer competitive in world markets, is running a large trade deficit that can only be financed by borrowing from abroad.

There is some truth here. The United States has fallen behind its competitors in many areas and the trade imbalance has therefore widened. However, both images fail to acknowledge fully the role that the globalization of United States corporations has played in creating the foreign debt.

1. According to the author of the passage, which of the following factors is neglected by the economists mentioned in the two highlighted portions of text in their images of the United States as a debtor nation?

A. The rate at which the United States shifted from creditor to debtor status
B. The differences between the United States and other countries that have experienced a change from creditor to debtor status
C. The significance of the globalization of United States corporations
D. The potential benefits of direct investment in United States corporations
E. The experience of countries that have shifted from debtor to creditor status

2. It can be inferred from the passage that one difference between proponents of the competing images discussed in the passage is their viewpoint about which of the following aspects of the change from creditor to debtor status?

A. Whether the change is causing an increase or a decrease in the dependence of the United States on foreign capital
B. Whether the rate of change will accelerate or decelerate in the future
C. Whether the change has attracted direct or portfolio investment
D. What role the global expansion of United States corporations has played in the change
E. What the change suggests about the economic status of the United States

3. The author of the passage discusses a distinction between direct investment (see first highlighted portion of text) and portfolio investment (see second highlighted portion of text) primarily in order to

A. provide background information needed to understand the shift of the United States from creditor to debtor status
B. warn against the dangers of certain types of foreign investment
C. undermine one explanation offered by economists to explain the foreign debt of the United States
D. find common ground between seemingly opposing interpretations of United States foreign debt
E. suggest an area that needs further analysis before the magnitude of the foreign debt can be determined

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Show Answer Question #1

Official Answer

C

Show Answer Question #2

Official Answer

E

Show Answer Question #3

Official Answer

C

FCK89 · Answer

Hello I failed the last two questions but after reviewing the text I understood my errors. Can someone tell me if my reasoning is good?

thank you

1. According to the author of the passage, which of the following factors is neglected by the economists mentioned in the two highlighted portions of text in their images of the United States as a debtor nation?

C. The significance of the globalization of United States corporations
"There is some truth here. The United States has fallen behind its competitors in many areas and the trade imbalance has therefore widened.  However, both images fail to acknowledge fully the role that the globalization of United States corporations has played in creating the foreign debt ."

2. It can be inferred from the passage that one difference between proponents of the competing images discussed in the passage is their viewpoint about which of the following aspects of the change from creditor to debtor status?
E. What the change suggests about the economic status of the United States

1st proponent: "Some economists liken the United States to a rising corporation, attracting investments from other corporations eager to share in spectacular profits."
2nd proponent: "Other economists compare the United States to a declining corporation; according to this image the United States, no longer competitive in world markets, is running a large trade deficit that can only be financed by borrowing from abroad."

For me there is a status quo about this situation. Both have different view about how this trend affect the US economic situation. One look at it as a very positive situation while the other are really alarming by the situation. So they are not agreeing about What the change suggests about the economic status of the United States.

3. The author of the passage discusses a distinction between direct investment (see first highlighted portion of text) and portfolio investment (see second highlighted portion of text) primarily in order to
C. undermine one explanation offered by economists to explain the foreign debt of the United States

"Some economists liken the United States to a rising corporation, attracting investments from other corporations eager to share in spectacular profits. According to this image, far from being a sign of decline, foreign investment in the United States  is a sign of success .  While this image is appealing ,  if the United States were truly a rising corporation  most foreign investment would presumably be direct investment... portfolio investment, which confers no direct ownership."

The proponent saw the situation as a "sign of success" while immediately after this sentence, the author doubt this conclusion (" if the United States were truly a rising corporation ") by giving an opposite argument of the situation.

MS61 · Answer

For question 2 : We are talking about proponents of Competing image : Economists who are advocating the competing image ( Reduction in competition in world market ).
and we are asked "viewpoint about which of the following aspects of the change from creditor to debtor status" : The view point is about trade imbalance.

Answer E : Addresses the trade imbalance : What the change suggests about the economic status of the United States. The change is competition in world market & Economic status is trade imbalance.

This is how I marked option E as correct answer

Nsp10 · Answer

MartyMurray 
Hello Sir, I came across this RC passage today in one of my mocks and I found this one quite challenging. 
Could you please guide me on how you would have approached solving it? Your insights on the best strategy to tackle such passages would be really helpful.

Thank you!

napolean92728 · Answer

Question 1:  
  1. According to the author of the passage, which of the following factors is neglected by the economists mentioned in the two highlighted portions of text in their images of the United States as a debtor nation?   
🔍 What is the question asking?
The question asks  what factor the author believes the economists in the two images (rising corporation and declining corporation) fail to fully consider .

📚 What does the passage say?
At the end of the passage, the author states:
 
This is a  direct statement  from the author, telling us what is  neglected  by both groups of economists. So we’re looking for the answer choice that reflects this idea.

✅ Option C:  The significance of the globalization of United States corporations 
 This is correct. 
It directly matches the author’s point that  globalization of U.S. corporations  is an overlooked factor in the foreign debt situation.

Now, let's  eliminate the wrong options :

❌ Option A:  The rate at which the United States shifted from creditor to debtor status 
 
  Why it’s wrong: 
 The passage does not mention or focus on  how fast  the U.S. shifted roles. It focuses on the  nature  and  implications  of foreign investment, not the timeline of the shift.

❌ Option B:  The differences between the United States and other countries that have experienced a change from creditor to debtor status 
 
  Why it’s wrong: 
 There’s  no mention  of comparisons between the U.S. and other nations that made a similar change. The passage doesn’t explore that angle at all.

❌ Option D:  The potential benefits of direct investment in United States corporations 
 
  Why it’s wrong: 
 While the passage  mentions direct investment , it doesn’t say economists are neglecting its  benefits . Instead, it uses the type of investment (portfolio vs direct) to argue against the “rising corporation” image. The  neglected factor , as stated by the author, is globalization, not investment benefits.

❌ Option E:  The experience of countries that have shifted from debtor to creditor status 
 
  Why it’s wrong: 
 This is irrelevant. The passage does not talk about countries going from debtor to creditor status—only about the U.S. going the other way. This is not mentioned or implied.

Question 2: 
 It can be inferred from the passage that one difference between proponents of the competing images discussed in the passage is their viewpoint about which of the following aspects of the change from creditor to debtor status? 
✅  Correct Answer: E. What the change suggests about the economic status of the United States 
Reasoning:
 
 The  two competing images  are:
 
 The U.S. as a  rising corporation  (positive view): Foreign investment is a sign of economic strength. 
 The U.S. as a  declining corporation  (negative view): Foreign borrowing reflects economic weakness and trade deficits.  
 
 The  core disagreement  lies in  what the debtor status implies about the U.S. economy  —  success or decline .  
That’s exactly what option  E  states.

Eliminating Wrong Options:
 
  A. Whether the change is causing an increase or a decrease in the dependence of the United States on foreign capital 
 ❌ Incorrect – Both views  acknowledge increased dependence ; they just interpret it differently. 
  B. Whether the rate of change will accelerate or decelerate in the future 
 ❌ Not discussed anywhere in the passage. The passage is  retrospective , not predictive. 
  C. Whether the change has attracted direct or portfolio investment 
 ❌ Only the  “rising corporation”  view gets criticized for not matching reality (most investment is portfolio, not direct). The other view doesn’t hinge on this. 
  D. What role the global expansion of United States corporations has played in the change 
 ❌ The  author  brings this up, but it’s  not part of the disagreement  between the two images.

Question 3: 
 The author of the passage discusses a distinction between direct investment and portfolio investment primarily in order to: 
✅  Correct Answer: C. undermine one explanation offered by economists to explain the foreign debt of the United States 
Reasoning:
 
 The author critiques the "rising corporation" view by pointing out that if the U.S. were truly rising,  foreign investment would likely be direct , to gain ownership and profits. 
 Instead, it’s mostly  portfolio investment , which suggests  investors aren't as confident in direct returns . 
 This  undermines  the idea that foreign investment is a sign of economic  strength or success .

Eliminating Wrong Options:
 
  A. Provide background information needed to understand the shift... 
 ❌ Too general and doesn't capture the author's  critical tone  toward the "rising corporation" image. 
  B. Warn against the dangers of certain types of foreign investment 
 ❌ No warning is given. The point is  analytical , not cautionary. 
  D. Find common ground between... 
 ❌ The distinction is used to  criticize , not reconcile the two views. 
  E. Suggest an area that needs further analysis... 
 ❌ The passage is making a clear argument, not pointing to a knowledge gap.

Once the largest creditor nation, the United States is now the worlds

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GMAT Reading Comprehension (RC) Questions

Once the largest creditor nation, the United States is now the worlds

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615 to 715 in 15 Days (Ria's Strategies)

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