The collapse of the stock “bubble” of Internet-related companies in 20

Question

New Project RC Butler 2019  -  Practice 2 RC Passages Everyday   
Passage # 14, Date : 07-FEB-2019
 This post is a part of New Project RC Butler 2019 .  Click here for Details

The collapse of the stock “bubble” of Internet-related companies in 2000–2001 has resulted in more than its fair share of analysis, hand-wringing, and finger-pointing. A panel discussion at a recent Technology Today conference in Santa Monica produced a heated debate between two former luminaries of the dot.com world: investment banker Pat Verhofen and Sue Mickelson, founder and CEO of Internet retailer Frizbeez.com Verhofen fired the opening shot by placing blame for the collapse of Internet stocks on the shoulders of Internet entrepreneurs who aggressively promoted ideas without viable business models. These entrepreneurs were both irresponsible and deceptive, Verhofen argued, to take investors’ money to fund operations that could not reasonably turn a profit, such as giving computers away for free or selling bulky objects, such as dog food or furniture, over the Internet. Many of these companies, he suggested, were little more than arrangements of smoke and mirrors designed to separate investors from their money.

Mickelson responded that Verhofen was like a fox in a henhouse blaming the rooster for all the dead chickens. Entrepreneurs cannot be blamed, she argued, for trying to make money for themselves and other people, because that is what entrepreneurs do. She also stated that you cannot know what ideas will or will not work until you try them; contemporaries of the Wright brothers said that a heavier-than-air aircraft could never work, and look at the skies today. Mickelson instead placed the blame on the unscrupulous bankers and fund managers who hyped Internet stocks in order to cash in on fees from IPOs and trades. In contrast to entrepreneurs, these financial types actually do have a responsibility to offer only sound financial advice to their clients. If anyone should bear the blame, she argued, it should be people like Pat Verhofen.

Indigo Smith, the moderator of the panel, responded that perhaps the true fault lay with the common investors, who should not have invested in technology stocks in the first place if they lacked the knowledge to do so properly. While she expressed sympathy for those elderly investors who lost substantial portions of their retirement savings on flimsy Internet stocks, she observed that no one forced them to invest in those stocks.   1 
 1. Which of the following best describes the structure of the passage?

A. It mentions a puzzling situation, and then describes three approaches people have taken to help understand that situation.
B. It presents an argument for why something took place, and then offers a refutation of that argument.
C. It introduces a past phenomenon and then presents three explanations for why the phenomenon took place.
D. It describes a problem, offers a solution to the problem, and then offers reasons why the solution could not work.
E. It offers three explanations for a phenomenon and then summarizes what all three have in common.

2 
 2. Which of the following statements presents the strongest conclusion one could draw based on the information given in the passage?

A. The collapse of the Internet stock “bubble” drove thousands of investors into bankruptcy.
B. People involved with the Internet do not all agree on which party bears the most responsibility for the collapse of the Internet stock “bubble.”
C. Of all parties involved with the Internet, financial professionals such as investment bankers and fund managers derived the most profits from the stock “bubble.”
D. The Internet stock “bubble” could not have occurred if entrepreneurs had been honest about the true financial prospects of their companies.
E. The average investor has no one to blame but himself or herself if he or she invested in an Internet stock without adequately understanding the true financial prospects of the companies in question.

3 
 3. Which of the following best captures the meaning of the simile attributed to Mickelson that Verhofen “was like a fox in a henhouse blaming the rooster for all the dead chickens”?

A. As an entrepreneur, Mickelson understands that similes and other figures of speech can help convey complex ideas to audiences.
B. Verhofen, as an investment banker, was personally responsible for promoting businesses that he knew were not viable from a long-term perspective.
C. Foxes, unlike roosters, have no legitimate business in henhouses, and are far more likely than roosters to kill chickens.
D. As an investment banker, Verhofen was more likely to be the culprit of the crime than those he identified as responsible.
E. Entrepreneurs cannot be blamed for trying to make money for themselves and other people because that is what they do.

4 
 4. If Mickelson had not used the example of the Wright brothers in her argument, what other example might have illustrated her point as well?

A. Despite widespread public opinion that the sun revolves around the earth, Galileo Galilei published findings showing that the earth revolved around the sun; he later retracted this assertion as a result of pressure from the Church.
B. A tobacco company chose to market cigarettes to children despite widespread public opinion that such marketing is unethical; over the following decade, the company expanded its share of the tobacco market.
C. A home electronics company devoted substantial development resources to eight track audio technology despite widespread industry opinion that cassette tapes were the wave of the future; eight-tracks were soon replaced by cassette tapes, which in turn were replaced by compact disks.
D. A newspaper chose to publish a story that government lawyers said it could not print; the newspaper won its case against the government lawyers in a federal court, and the writer of the story won a Pulitzer Prize.
E. A computer company initiated research into manufacturing a computer for home use when widespread public opinion held that computers could be useful only for large corporations or government agencies; personal home computers became a multi billion dollar market.

5 
 5. If Verhofen’s arguments and statements are all correct, which of the following statements can accurately be inferred?

A. Biotechnology executives who aggressively raise investment capital for bioengineered products with no conceivable market should be held responsible if biotechnology stocks crash.
B. Investors should make financial decisions only with the advice of qualified financial advisors, such as investment bankers or fund managers.
C. If people lose money on investments that they inadequately researched, they have only themselves to blame.
D. If insurance companies provide home insurance for homes built in a hurricane zone and those homes are subsequently all destroyed by a major hurricane, the insurance company should be blamed for any investment losses suffered by its shareholders.
E. The collapse of Internet stocks would not have occurred if companies had not attempted to sell bulky items, like dog food, over the Internet.

Source:   McGraw Hills GMAT 2013  
Difficulty Level:   650

Sajjad1994 · Accepted Answer

Official Explanation

1. Which of the following best describes the structure of the passage?

Explanation

The passage introduces the past phenomenon of the Internet stock collapse in the first paragraph and then presents three alternative explanations of who was responsible for that collapse.  C is better than A  because the stated positions are better characterized as  “explanations” than as “approaches,”  and C is better than E because the passage provides no summary of what the three explanations have in common.

ANSWER: C

2. Which of the following statements presents the strongest conclusion one could draw based on the information given in the passage?

Explanation

The passage provides three opposing viewpoints on this very question, so clearly this is an accurate statement based on the passage.  Answers A and C might be true , but there is inadequate support for them in the passage.  Answers D and E  present opinions similar to those of Verhofen and Smith, respectively, in the passage, but the question does not state that the opinions expressed in the passage are necessarily true, so these statements cannot be taken as  “strong conclusions.”

B is the best answer  .

3. Which of the following best captures the meaning of the simile attributed to Mickelson that Verhofen “was like a fox in a henhouse blaming the rooster for all the dead chickens”?

Explanation

The passage states that Verhofen is an investment banker and that Mickelson places blame for the Internet collapse on  “unscrupulous bankers.”  Her metaphor implies that an investment banker blaming entrepreneurs is, like a fox found among a group of dead chickens, a more likely culprit than those he blamed.  D captures this idea . B captures part of this idea, but it does not address the aspect of blaming others.

ANSWER: D

4. If Mickelson had not used the example of the Wright brothers in her argument, what other example might have illustrated her point as well?

Explanation

The answer should describe a business or technological innovation that a person or company pursued despite widespread opinion that the idea could not work, and that then turned out to be a great success. The example of personal home computers in E captures all of the relevant themes. C is wrong because the innovation failed, and B and D are wrong because people said that the idea should not be done, not that it could not be done. A is a weak answer because it is talking about a concept rather than a business or technological innovation, and because Galileo retracted his cosmological statements.
  ANSWER: E

5. If Verhofen’s arguments and statements are all correct, which of the following statements can accurately be inferred?

Explanation

A provides the most similar circumstances to those of Verhofen’s argument, in which Internet entrepreneurs  “who aggressively promoted ideas without viable business models”  should be blamed for the collapse of Internet stocks.  B and C have no support in the text , D provides a different type of example that does not coincide well with Verhofen’s argument, and  E overstates Verhofen’s position , since he identified companies that sell bulky items as one of the causes of the Internet stock collapse, but not the only cause.
  ANSWER: A

Hope it Helps

CrackverbalGMAT · Answer

Question 1 - 
A - there is no indication that the situation is "puzzling".
B - Incorrect. Actually, 3 different arguments are presented, not just "an argument".
C - correct answer.
D - no "solution" is offered. also does not offer "reasons" for solutions not working.
E - it does not mention what the three arguments have in "common".

Question 2 - 
A - we do not know whether "thousands of" investors were driven into bankruptcy. the passage does not give any indication of the actual number of investors who were adversely affected by the dot com bust.
B - correct. Even one example is sufficient. i.e. Mickelson and Verhofen do not agree with each other.
C - We have no idea which group derived the "most" profits.
D - It might be Verhofen's view, but we have no idea what the author's views on this issue are.
E - It is the view of Indigo Smith, but we have no idea what the author's views on this issue are.

Question 3 - 
A - "similes and other figures of speech" are irrelevant here.
B - she has not said that he was "personally" responsible.
C - We are talking about Verhofen, not about "foxes".
D- correct answer. "foxes" are more likely responsible for killing chickens is similar to "investment bankers" are more likely responsible for the financial crash.
E - even though this is mentioned in the passage, this is not the reason for comparing Verhosen to "fox in a hen hole".

soumya170293 · Answer

Would anyone please explain the question no 5 ? Thanks in advance. ( why not D )

Sajjad1994 · Answer

Explanation

ANSWER: A 
A provides the most similar circumstances to those of Verhofen’s argument, in which Internet entrepreneurs “who aggressively promoted ideas without viable business models” should be blamed for the collapse of Internet stocks. B and C have no support in the text,  D provides a different type of example that does not coincide well with Verhofen’s argument,  and E overstates Verhofen’s position, since he identified companies that sell bulky items as one of the causes of the Internet stock collapse, but not the only cause. A is the best answer.

Hope it Helps

Ashokshiva · Answer

1. Which of the following best describes the structure of the passage?

A. It mentions a puzzling situation, and then describes three approaches people have taken to help understand that situation.
 No puzzling situation is mentioned. Passage talks about a past event 
B. It presents an argument for why something took place, and then offers a refutation of that argument.
 NO refutation of argument happens 
C. It introduces a past phenomenon and then presents three explanations for why the phenomenon took place.
 correct, passage starts with explaining a past event and then presents explanation by 3 persons on why the event took place. 
D. It describes a problem, offers a solution to the problem, and then offers reasons why the solution could not work.
 No solution is offered 
E. It offers three explanations for a phenomenon and then summarizes what all three have in common.
 All 3 explanations have nothing in common

2. Which of the following statements presents the strongest conclusion one could draw based on the information given in the passage?

A. The collapse of the Internet stock “bubble” drove thousands of investors into bankruptcy.
 No, not explicitly mentioned in the passage 
B. People involved with the Internet do not all agree on which party bears the most responsibility for the collapse of the Internet stock “bubble.”
 Correct, the entrepreneur, investment banker and moderator all blame others for the bubble 
C. Of all parties involved with the Internet, financial professionals such as investment bankers and fund managers derived the most profits from the stock “bubble.”
 No 
D. The Internet stock “bubble” could not have occurred if entrepreneurs had been honest about the true financial prospects of their companies.
 No 
E. The average investor has no one to blame but himself or herself if he or she invested in an Internet stock without adequately understanding the true financial prospects of the companies in question.
 No

3. Which of the following best captures the meaning of the simile attributed to Mickelson that Verhofen “was like a fox in a henhouse blaming the rooster for all the dead chickens”?

A. As an entrepreneur, Mickelson understands that similes and other figures of speech can help convey complex ideas to audiences.
 Question asks for meaning of simile and the reason why mickelson used simile 
B. Verhofen, as an investment banker, was personally responsible for promoting businesses that he knew were not viable from a long-term perspective.
 More of personal attack, whereas Mickelson wanted to blame the investment banker community for the bubble 
C. Foxes, unlike roosters, have no legitimate business in henhouses, and are far more likely than roosters to kill chickens.
 Explains the simile 
D. As an investment banker, Verhofen was more likely to be the culprit of the crime than those he identified as responsible.
 Correct 
E. Entrepreneurs cannot be blamed for trying to make money for themselves and other people because that is what they do.
 Not linked to the simile mentioned in the question

4. If Mickelson had not used the example of the Wright brothers in her argument, what other example might have illustrated her point as well?

A. Despite widespread public opinion that the sun revolves around the earth, Galileo Galilei published findings showing that the earth revolved around the sun; he later  retracted this assertion as a result of pressure from the Church .
B. A tobacco company chose to market cigarettes to children despite widespread  public opinion that such marketing is unethical ; over the following decade, the company expanded its share of the tobacco market.
C. A home electronics company devoted substantial development resources to eight track audio technology despite widespread industry opinion that cassette tapes were the wave of the future;  eight-tracks were soon replaced by cassette tapes , which in turn were replaced by compact disks.
D. A newspaper chose to publish a story that  government lawyers said it could not print ; the newspaper won its case against the government lawyers in a federal court, and the writer of the story won a Pulitzer Prize.
E. A computer company initiated research into manufacturing a computer for home use when widespread public opinion held that computers could be useful only for large corporations or government agencies; personal home computers became a multi billion dollar market.
  - correct, inspite of widespread opinion the idea became a hit

5. If Verhofen’s arguments and statements are all correct, which of the following statements can accurately be inferred?

A. Biotechnology executives who aggressively raise investment capital for bioengineered products with no conceivable market should be held responsible if biotechnology stocks crash. 
 - correct,people who take up business idea that is not viable should be blamed for the loss 
B. Investors should make financial decisions only with the advice of qualified financial advisors, such as investment bankers or fund managers.
C. If people lose money on investments that they inadequately researched, they have only themselves to blame.
D. If insurance companies provide home insurance for homes built in a hurricane zone and those homes are subsequently all destroyed by a major hurricane, the insurance company should be blamed for any investment losses suffered by its shareholders.
E. The collapse of Internet stocks would not have occurred if companies had not attempted to sell bulky items, like dog food, over the Internet.

vaibhav1221 · Answer

2. Which of the following statements presents the strongest conclusion one could draw based on the information given in the passage?

A. The collapse of the Internet stock “bubble” drove thousands of investors into bankruptcy. -  We know a lot of pople lost money, but bankruptcy? No idea.

B. People involved with the Internet do not all agree on which party bears the most responsibility for the collapse of the Internet stock “bubble.” -  Correct. That is why they are pointing fingers at each other and playing the blame game.

C. Of all parties involved with the Internet, financial professionals such as investment bankers and fund managers derived the most profits from the stock “bubble.” -  Incorrect

D. The Internet stock “bubble” could not have occurred if entrepreneurs had been honest about the true financial prospects of their companies. -  Incorrect

E. The average investor has no one to blame but himself or herself if he or she invested in an Internet stock without adequately understanding the true financial prospects of the companies in question. -  This is an opinion mentioned in the third paragraph and is not the conclusion. Absolutely Incorrect

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