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16 Sep 2014, 01:47
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Between 1999 and 2006, there were two episodes during which inflation in the Consumer Price Index (CPI) diverged markedly from inflation in the index for Owner's Equivalent Rent (OER); early in 2007, these series began to diverge again. Such divergence often prompts many to question CPI methods. A key difference between these two series is that OER indexes are based upon rents which have received a utilities adjustment -- an adjustment which is necessary because the OER index is intended to track pure rent-of-shelter, not shelter-plus-utilities. Critics have claimed that the CPI-OER inflation divergences stem from inappropriate utilities adjustment.
This claim is false. There is only one divergence episode -- of only six months duration -- which is primarily attributable to the utilities adjustment procedure. Indeed, the utilities adjustment sometimes reduced potential divergence between the two series. Instead, the main factor is rental market segmentation; that is, different rent inflation rates were experienced by different parts of the rental market. Before 2003, the CPI-OER inflation divergence mainly resulted from divergent rental inflation rates within metropolitan areas: areas with a higher proportion of renters experienced higher rental inflation. Compared to other units, rent control units experienced higher inflation in 2004 (and, to a lesser extent, before mid-2001 and in 2006), which increased CPI Inflation but not OER inflation. Finally, in early 2007, there was a sizable divergence between OER and CPI inflation, again driven by divergent rental inflation rates within metropolitan areas. The extent of the divergence only becomes evident once the effect of the utilities adjustment is accounted for.
This claim is false. There is only one divergence episode -- of only six months duration -- which is primarily attributable to the utilities adjustment procedure. Indeed, the utilities adjustment sometimes reduced potential divergence between the two series. Instead, the main factor is rental market segmentation; that is, different rent inflation rates were experienced by different parts of the rental market. Before 2003, the CPI-OER inflation divergence mainly resulted from divergent rental inflation rates within metropolitan areas: areas with a higher proportion of renters experienced higher rental inflation. Compared to other units, rent control units experienced higher inflation in 2004 (and, to a lesser extent, before mid-2001 and in 2006), which increased CPI Inflation but not OER inflation. Finally, in early 2007, there was a sizable divergence between OER and CPI inflation, again driven by divergent rental inflation rates within metropolitan areas. The extent of the divergence only becomes evident once the effect of the utilities adjustment is accounted for.
1. It can be inferred from the passage that which of the following would most probably be a point of contention between the critics mentioned in the first paragraph and the author of the passage?
(a) why utilities adjustments are necessary when comparing the CPI and OER indices
(b) the definitional difference between the CPI and OER indices
(c) when rent control units experienced higher inflation that non-rent control units
(d) the underlying cause of CPI-OER inflation divergences
(e) when the CPI and OER indices have diverged from one another
2. The primary purpose of the passage is to
(a) evaluate methods used to measure rental inflation divergence
(b) summarize two arguments about rental inflation divergence
(c) refute an argument about rental inflation divergence
(d) reconcile conflicting arguments about rental inflation divergence
(e) reinterpret research findings about rental inflation divergence
3. According to the passage, which of the following is true of rent control units?
(a) The CPI and OER indices change to differing degrees based on the rate at which these units experience inflation.
(b) There are more rent control units in areas with a higher proportion of renters.
(c) Rent control units undergo utilities adjustments while non-rent-controlled units do not undergo such adjustments.
(d) There has only been one six-month inflation divergence episode among the inflation rates of rent controlled units.
(e) Rent control unit inflation is the primary factor influencing the OER inflation index, but is only marginally important in the CPI index.
4. According to the passage, which of the following is a key difference between inflation in the CPI index and inflation in the OER index?
(a) OER indexes are based on rents that have undergone utilities adjustments while the CPI Index is based on rents that have not undergone such adjustments.
(b) OER indexes are based on rental market segmentation while the CPI index is based on non-segmented rental markets.
(c) The inflation in the CPI Index has only experienced one divergence episode while inflation in the index for OER has undergone multiple divergence episodes.
(d) The CPI Index is meant to track rental inflation rates within metropolitan areas while the index for OER is meant to track rental inflation in rural areas.
(e) Methods for tracking inflation in the CPI Index are inferior to methods for tracking inflation in the index for OER.
(a) why utilities adjustments are necessary when comparing the CPI and OER indices
(b) the definitional difference between the CPI and OER indices
(c) when rent control units experienced higher inflation that non-rent control units
(d) the underlying cause of CPI-OER inflation divergences
(e) when the CPI and OER indices have diverged from one another
2. The primary purpose of the passage is to
(a) evaluate methods used to measure rental inflation divergence
(b) summarize two arguments about rental inflation divergence
(c) refute an argument about rental inflation divergence
(d) reconcile conflicting arguments about rental inflation divergence
(e) reinterpret research findings about rental inflation divergence
3. According to the passage, which of the following is true of rent control units?
(a) The CPI and OER indices change to differing degrees based on the rate at which these units experience inflation.
(b) There are more rent control units in areas with a higher proportion of renters.
(c) Rent control units undergo utilities adjustments while non-rent-controlled units do not undergo such adjustments.
(d) There has only been one six-month inflation divergence episode among the inflation rates of rent controlled units.
(e) Rent control unit inflation is the primary factor influencing the OER inflation index, but is only marginally important in the CPI index.
4. According to the passage, which of the following is a key difference between inflation in the CPI index and inflation in the OER index?
(a) OER indexes are based on rents that have undergone utilities adjustments while the CPI Index is based on rents that have not undergone such adjustments.
(b) OER indexes are based on rental market segmentation while the CPI index is based on non-segmented rental markets.
(c) The inflation in the CPI Index has only experienced one divergence episode while inflation in the index for OER has undergone multiple divergence episodes.
(d) The CPI Index is meant to track rental inflation rates within metropolitan areas while the index for OER is meant to track rental inflation in rural areas.
(e) Methods for tracking inflation in the CPI Index are inferior to methods for tracking inflation in the index for OER.
16 Sep 2014, 01:47
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Show SpoilerQuestion S93-10 explanation
The question asks for something that, based on the content of the passage, the critics mentioned in the first paragraph and the author of the passage would be likely to disagree on.
Choice A notes the reason why utilities adjustments are necessary when comparing the CPI and OER indices. The author offers this piece of information so that a reader unfamiliar with the indices can better understand the arguments being presented, not to argue with critics.
Choice B mentions the difference between the CPI and OER indices. The author states the difference between these two indices as a fact that supports his or her argument. The passage says nothing to suggest that the critics would dispute this difference.
Choice C mentions the period during which rent control units experienced higher inflation than non-rent control units. Again, the author includes this fact to support his or her argument. The passage says nothing to suggest that the critics would dispute the time period during which rent-control units experienced higher inflation than non-rent control units.
Choice D mentions the reason behind CPI-OER inflation divergences. The final sentence of the first paragraph reads Critics have claimed that the CPI-OER inflation divergences stem from inappropriate utilities adjustment. The first sentence of the second paragraph reads This claim is false. It can thus be inferred that the critics mentioned in the first paragraph and the author would be likely to disagree on the cause of CPI-OER inflation divergences. Choice D is correct.
Choice E mentions the time period during which the CPI and OER indices diverged from one another. This is presented as a piece of evidence and not a theory; the critics would not disagree with this.
Choice A notes the reason why utilities adjustments are necessary when comparing the CPI and OER indices. The author offers this piece of information so that a reader unfamiliar with the indices can better understand the arguments being presented, not to argue with critics.
Choice B mentions the difference between the CPI and OER indices. The author states the difference between these two indices as a fact that supports his or her argument. The passage says nothing to suggest that the critics would dispute this difference.
Choice C mentions the period during which rent control units experienced higher inflation than non-rent control units. Again, the author includes this fact to support his or her argument. The passage says nothing to suggest that the critics would dispute the time period during which rent-control units experienced higher inflation than non-rent control units.
Choice D mentions the reason behind CPI-OER inflation divergences. The final sentence of the first paragraph reads Critics have claimed that the CPI-OER inflation divergences stem from inappropriate utilities adjustment. The first sentence of the second paragraph reads This claim is false. It can thus be inferred that the critics mentioned in the first paragraph and the author would be likely to disagree on the cause of CPI-OER inflation divergences. Choice D is correct.
Choice E mentions the time period during which the CPI and OER indices diverged from one another. This is presented as a piece of evidence and not a theory; the critics would not disagree with this.
Show SpoilerQuestion S93-11 explanation
The question asks for the main reason why the author wrote the passage.
The author is making an argument about rental inflation divergence between CEO and OER inflation and what accounts for it. The end of the first paragraph claims that Critics have claimed that the CPI-OER inflation divergences stem from inappropriate utilities adjustment. The entire second paragraph disputes this claim and cites alternative explanations for the divergence.
Choice A, evaluate methods used to measure rental inflation divergence, is too narrow. These methods are only mentioned once in the first paragraph and they are not evaluated in any detail.
Choice B, summarize two arguments about rental inflation divergence, while true, does not capture the author's purpose. The author summarizes an argument in the first paragraph and makes a counter argument in the second.
Choice C, refute an argument about rental inflation divergence, makes sense because the author lays out an argument in the first paragraph and makes an opposing argument in the second paragraph. Choice C is correct.
Choice D, reconcile conflicting arguments about rental inflation divergence, is the opposite of what the author is trying to do. The author refutes one argument with another; he or she is not attempting to reconcile the arguments.
Choice E, reinterpret research findings about rental inflation divergence, does not match the information in the passage. The author uses research findings about rental inflation divergence to support his or her argument.
The author is making an argument about rental inflation divergence between CEO and OER inflation and what accounts for it. The end of the first paragraph claims that Critics have claimed that the CPI-OER inflation divergences stem from inappropriate utilities adjustment. The entire second paragraph disputes this claim and cites alternative explanations for the divergence.
Choice A, evaluate methods used to measure rental inflation divergence, is too narrow. These methods are only mentioned once in the first paragraph and they are not evaluated in any detail.
Choice B, summarize two arguments about rental inflation divergence, while true, does not capture the author's purpose. The author summarizes an argument in the first paragraph and makes a counter argument in the second.
Choice C, refute an argument about rental inflation divergence, makes sense because the author lays out an argument in the first paragraph and makes an opposing argument in the second paragraph. Choice C is correct.
Choice D, reconcile conflicting arguments about rental inflation divergence, is the opposite of what the author is trying to do. The author refutes one argument with another; he or she is not attempting to reconcile the arguments.
Choice E, reinterpret research findings about rental inflation divergence, does not match the information in the passage. The author uses research findings about rental inflation divergence to support his or her argument.
Show SpoilerQuestion S93-12 explanation
The question asks for a claim that the passage explicitly makes about rent control units.
Rent control units are only mentioned in the second paragraph, so the correct answer will likely be found there.
Choice A is a paraphrase of the sentence in the passage which reads compared to other units, rent control units experienced higher inflation in 2004 ... which increased CPI Inflation but not OER inflation. Choice A is correct.
Choice B mentions that where there are more renters, there are more rent control units. The passage only says that areas with a higher proportion of renters experienced higher rental inflation - it says nothing about rent control units.
Choice C mentions that only rent control units undergo utilities adjustments. The passage says that OER indexes are based upon rents that have undergone utilities adjustments; the passage does not say whether these rents apply to rent control units or not.
Choice D mentions that there has only been one instance of inflation divergence among rent controlled units. The passage says that there has been one instance of inflation divergence attributable to the utilities adjustment procedure, not one instance of inflation divergence in general. It also does not say anything about rent control units in relation to this divergence.
Choice E is overstated and backwards. The passage states that rent control inflation increased CPI inflation but not OER inflation, while this choice is the other way around. Furthermore, there is no evidence that rent control units inflation is the primary factor.
Rent control units are only mentioned in the second paragraph, so the correct answer will likely be found there.
Choice A is a paraphrase of the sentence in the passage which reads compared to other units, rent control units experienced higher inflation in 2004 ... which increased CPI Inflation but not OER inflation. Choice A is correct.
Choice B mentions that where there are more renters, there are more rent control units. The passage only says that areas with a higher proportion of renters experienced higher rental inflation - it says nothing about rent control units.
Choice C mentions that only rent control units undergo utilities adjustments. The passage says that OER indexes are based upon rents that have undergone utilities adjustments; the passage does not say whether these rents apply to rent control units or not.
Choice D mentions that there has only been one instance of inflation divergence among rent controlled units. The passage says that there has been one instance of inflation divergence attributable to the utilities adjustment procedure, not one instance of inflation divergence in general. It also does not say anything about rent control units in relation to this divergence.
Choice E is overstated and backwards. The passage states that rent control inflation increased CPI inflation but not OER inflation, while this choice is the other way around. Furthermore, there is no evidence that rent control units inflation is the primary factor.
Show SpoilerQuestion S93-13 explanation
This question asks for something that is explicitly stated in the passage.
As noted in the passage summary, this discussion is found in the first paragraph.
Choice A makes sense because the passage says that a key difference is that OER indexes are based upon rents which have received a utilities adjustment. This leads to the inference that the CPI index is based on rents that have not received a utilities adjustment. Choice A is correct.
Choice B mentions segmented versus non-segmented rental markets as a difference between the two indices. This is not supported by the passage because both indices deal with segmented rental markets.
Choice C talks about separate instances of divergence. The passage, however, says that divergence episodes involve the inflation in the CPI Index and the inflation in the index for OER diverging from one another.
Choice D mentions that the two indices are meant to track inflation rates in different types of areas. While the passage does mention rental inflation rates within metropolitan areas, it does not say that one index is meant to track inflation rates within urban areas while the other is meant to track rental inflation in rural areas.
Choice E mentions CPI inflation tracking methods being inferior to OER methods. The author says that critics of the CPI make this claim; the author goes on to explain why these critics are wrong.
As noted in the passage summary, this discussion is found in the first paragraph.
Choice A makes sense because the passage says that a key difference is that OER indexes are based upon rents which have received a utilities adjustment. This leads to the inference that the CPI index is based on rents that have not received a utilities adjustment. Choice A is correct.
Choice B mentions segmented versus non-segmented rental markets as a difference between the two indices. This is not supported by the passage because both indices deal with segmented rental markets.
Choice C talks about separate instances of divergence. The passage, however, says that divergence episodes involve the inflation in the CPI Index and the inflation in the index for OER diverging from one another.
Choice D mentions that the two indices are meant to track inflation rates in different types of areas. While the passage does mention rental inflation rates within metropolitan areas, it does not say that one index is meant to track inflation rates within urban areas while the other is meant to track rental inflation in rural areas.
Choice E mentions CPI inflation tracking methods being inferior to OER methods. The author says that critics of the CPI make this claim; the author goes on to explain why these critics are wrong.
