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# Over the last eight years, the Federal Reserve Bank has raised the pri

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Over the last eight years, the Federal Reserve Bank has raised the pri  [#permalink]

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Updated on: 11 Feb 2019, 05:28
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Question Stats:

79% (01:20) correct 21% (01:40) wrong based on 271 sessions

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Over the last eight years, the Federal Reserve Bank has raised the prime interest rate by a quarter-point more than ten times. The Bank raises rates when its Board of Governors fears inflation and lowers rates when the economy is slowing down.

Which of the following is the most logical conclusion for the paragraph above?

(A) The Federal Reserve should be replaced with regional banks that can respond more quickly to changing economic conditions.

(B) The Federal Reserve has raised the prime rate in recent years to try to control inflation.

(C) The economy has entered a prolonged recession caused by Federal Reserve policies.

(D) The monetary policy of the United States is no longer controlled by the Federal Reserve.

(E) The Federal Reserve has consistently raised the prime rate over the last several years.

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Originally posted by rohan2345 on 08 May 2017, 11:08.
Last edited by Bunuel on 11 Feb 2019, 05:28, edited 1 time in total.
Renamed the topic.
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Re: Over the last eight years, the Federal Reserve Bank has raised the pri  [#permalink]

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08 May 2017, 22:34
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Over the last eight years, the Federal Reserve Bank has raised the prime interest rate by a quarter-point more than ten times. The Bank raises rates when its Board of Governors fears inflation and lowers rates when the economy is slowing down.

Which of the following is the most logical conclusion for the paragraph above?

(A) The Federal Reserve should be replaced with regional banks that can respond more quickly to changing economic conditions. (Irrelevant)
(B) The Federal Reserve has raised the prime rate in recent years to try to control inflation. (True)
(C) The economy has entered a prolonged recession caused by Federal Reserve policies. (Irrelevant)
(D) The monetary policy of the United States is no longer controlled by the Federal Reserve. (Irrelevant)
(E) The Federal Reserve has consistently raised the prime rate over the last several years. (Cannot be said. In last 8 year, there can be a year or more when Federal Reserve decreased the prime rate)

Hence, B.
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Re: Over the last eight years, the Federal Reserve Bank has raised the pri  [#permalink]

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16 Apr 2018, 10:12
I don't agree with OA as B.
How can fears means "to control".
GMATNinja can you please explain me whether am overthinking or my approach is wrong.

Thank you
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Re: Over the last eight years, the Federal Reserve Bank has raised the pri  [#permalink]

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16 Apr 2018, 12:40
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The OA states B as the solution. My question is how does 'fear of inflation' translate to 'control inflation' - it is not given that inflation has occurred
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Re: Over the last eight years, the Federal Reserve Bank has raised the pri  [#permalink]

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17 Apr 2018, 09:52
ronniepepperonnie wrote:
The OA states B as the solution. My question is how does 'fear of inflation' translate to 'control inflation' - it is not given that inflation has occurred

Premise: Bank raises interest when fears(be afraid of (someone or something) as likely to be dangerous, painful, or harmful) inflation(i.e when inflation is approaching) and lowers the rate when economy is slowing(action happening)down
Interpretation: Bank is trying to control economy(both inflation and deflation) by adjusting interest rate

Over the last eight years, the Federal Reserve Bank has raised the prime interest rate by a quarter-point more than ten times. The Bank raises rates when its Board of Governors fears inflation and lowers rates when the economy is slowing down.

Which of the following is the most logical conclusion for the paragraph above?

(A) The Federal Reserve should be replaced with regional banks that can respond more quickly to changing economic conditions.- out of focus, we are not given anything about regional banks
(B) The Federal Reserve has raised the prime rate in recent years to try to control inflation.- Bingo! we are clearly given that rate is adjusted to counter any possible effect on economy
(C) The economy has entered a prolonged recession caused by Federal Reserve policies.- A perfect 180, we are given that prime interest has been raised by a quarter-point more than ten times that means the inflation would have occurred more than 10 times, however this option says "The economy has entered a prolonged recession(inflation falls in recession)". Also we are just given that the rate has been increased more than 10 times and no information is given about the no. of times rate was decreased in last 8 years, hence we cannot just comment whether the recession has been prolonged
(D) The monetary policy of the United States is no longer controlled by the Federal Reserve.- out of focus, nothing has been said about United States or for that matter who is controlling the Federal Reserve
(E) The Federal Reserve has consistently raised the prime rate over the last several years.- warps the information, we are just given that the rate has been increased more than 10 times and no information is given about the no. of times rate was decreased in last 8 years. Also, to comment on consistency we must be given the information no. of times continuous increase/decrease in rate. What if the rate has increased 10 times but only once at the start of period and then more than 9 times in 8th year. We can not just comment about consistency of increase/decrease
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Re: Over the last eight years, the Federal Reserve Bank has raised the pri  [#permalink]

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11 Feb 2019, 05:30
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rohan2345 wrote:
Over the last eight years, the Federal Reserve Bank has raised the prime interest rate by a quarter-point more than ten times. The Bank raises rates when its Board of Governors fears inflation and lowers rates when the economy is slowing down.

Which of the following is the most logical conclusion for the paragraph above?

(A) The Federal Reserve should be replaced with regional banks that can respond more quickly to changing economic conditions.

(B) The Federal Reserve has raised the prime rate in recent years to try to control inflation.

(C) The economy has entered a prolonged recession caused by Federal Reserve policies.

(D) The monetary policy of the United States is no longer controlled by the Federal Reserve.

(E) The Federal Reserve has consistently raised the prime rate over the last several years.

OFFICIAL EXPLANATION:

You know from the language that this is a drawing-conclusions question, so you don’t have to look for a conclusion in the argument. Just read through the premises and formulate a quick conclusion, something like “Because the Federal Reserve has raised interest rates many times over the last eight years, it must fear inflation.”

Eliminate answer choices that aren’t relevant or that contain information not presented by the premises. The argument says nothing about regional banks or the termination of the Federal Reserve’s control over U.S. monetary policy, so you can disregard Choices (A) and (D). Then get rid of any choices that don’t take all premises into consideration. Choice (E) just reiterates the first premise, so it’s wrong. You’re left with Choices (B) and (C), but Choice (C) contradicts the information in the premises. The problem says the Federal Reserve responds to the economy, not the other way around, so it’d be wrong to say the Federal Reserve causes a recession. Choice (B) is clearly the best answer. It takes into consideration the information that the Federal Reserve has raised rates and that raising rates is its response to inflation.

Be careful to avoid relying on outside knowledge or opinions when answering drawing conclusions questions. You may have studied the Federal Reserve Bank and have opinions about monetary policy. Choices (A), (C), and (D) reflect some possible opinions about the Federal Reserve. Don’t get trapped into choosing an answer because it supports your opinion.
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Over the last eight years, the Federal Reserve Bank has raised the pri  [#permalink]

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19 Feb 2019, 03:29
The conclusion will encompass the information that is given to us. The conclusion will have a logical link between different information and entities stated in the given statements. Choice B logically links the Federal bank, interest rates and inflation per passage's context.
Over the last eight years, the Federal Reserve Bank has raised the pri   [#permalink] 19 Feb 2019, 03:29
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