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The deficit is the difference between the amount that the government

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The deficit is the difference between the amount that the government  [#permalink]

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New post 21 Oct 2018, 13:07
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  75% (hard)

Question Stats:

40% (01:32) correct 60% (01:32) wrong based on 178 sessions

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The deficit is the difference between the amount that the government taxes in as revenue and the amount that it spends in a given year. There are only two ways to cut the deficit: raise revenue or cut spending. The current government has carried out all possible efforts to cut spending without any significant effect on the deficit. It then follows that the deficit will remain at the current level for a few years since _________________

Which of the following best completes the passage?

A- No practical means currently exist to raise revenues.

B- The economy is stagnant and does not allow for any more industrial spending.

C- The government has to comply to international limits placed on its export contacts

D- The government is against increasing the tax burden on its citizens

E- The government is currently focusing on internal revenue management

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Re: The deficit is the difference between the amount that the government  [#permalink]

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New post 22 Oct 2018, 06:27
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[quote="rohan2345"]The deficit is the difference between the amount that the government taxes in as revenue and the amount that it spends in a given year. There are only two ways to cut the deficit: raise revenue or cut spending. The current government has carried out all possible efforts to cut spending without any significant effect on the deficit. It then follows that the deficit will remain at the current level for a few years since _________________

Which of the following best completes the passage?

A- No practical means currently exist to raise revenues. (WRONG)
No practical means CURRENTLY exist . after a year or so they may or may not be available. So this isnt definitive enough.

B- The economy is stagnant and does not allow for any more industrial spending. (WRONG)
Irrelevant . ONLY TWO WAYS. and spending is already out of question.

C- The government has to comply to international limits placed on its export contacts(WRONG)
OUT OF SCOPE...

D- The government is against increasing the tax burden on its citizens ( NOT INCORRECT)
: okay so this is atleast better than A because this option states the intentions of the govt. Now they may be permanent or just for now.

E- The government is currently focusing on internal revenue management(WRONG)
IRRELEVANT.

Both A and D are plausible. But if we be literal about the question , hen the BEST choice is D.
A on the other hand is explicitly stating CURRENT trends.

i would like to know the source of the question. because GMAT choices are definite enough to not let us wonder over the answr choice.

mikemcgarry GMATNinja @chetan2u....please weigh in
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Re: The deficit is the difference between the amount that the government  [#permalink]

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New post 22 Oct 2018, 06:55
I don’t really like this question and the answer. The timing issue in the question is not really explained well.

“The current government has carried out all possible efforts to cut spending without any significant effect on the deficit. It then follows that the deficit will remain at the current level for a few years since _________________”

It’s obvious that the government has done something to cut the spending already. So the current level of the deficit is the level after government cut the spending. In such case if the “current level” is going to remain unchanged for a few years then there are two cases - no room to keep cutting the expenses or no room to increase the revenue, both have to be effective not just now but for the following a few years.

A, it says “currently”. It’s not relevant.

B, could be the right one since there is no room for more revenue when economy growth stops. And clearly the government is not able to stimulate the economy. This could be the answer but it’s wording is back. We don’t know if it’s a current situation or a situation that could remain for years. Since it doesn’t address “currently”, I could keep it.

C, exporting is only one way to increase the revenue and being compliant doesn’t necessarily mean that the room for more revenue is limited. This, it’s not right.

D, another potential answer. If the government doesn’t want to add tax then there is no potential room for more revenue. But same situation as B. We don’t if this is only for now or future years. The tense used is a present tense. I am keeping it.

E, irrelevant. We want to know the impact of an action not the action itself. Also it addresses “currently”.

B or D, which one?

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Re: The deficit is the difference between the amount that the government  [#permalink]

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New post 22 Oct 2018, 08:21
Fc733 wrote:
I don’t really like this question and the answer. The timing issue in the question is not really explained well.

“The current government has carried out all possible efforts to cut spending without any significant effect on the deficit. It then follows that the deficit will remain at the current level for a few years since _________________”

It’s obvious that the government has done something to cut the spending already. So the current level of the deficit is the level after government cut the spending. In such case if the “current level” is going to remain unchanged for a few years then there are two cases - no room to keep cutting the expenses or no room to increase the revenue, both have to be effective not just now but for the following a few years.

A, it says “currently”. It’s not relevant.

B, could be the right one since there is no room for more revenue when economy growth stops. And clearly the government is not able to stimulate the economy. This could be the answer but it’s wording is back. We don’t know if it’s a current situation or a situation that could remain for years. Since it doesn’t address “currently”, I could keep it.

C, exporting is only one way to increase the revenue and being compliant doesn’t necessarily mean that the room for more revenue is limited. This, it’s not right.

D, another potential answer. If the government doesn’t want to add tax then there is no potential room for more revenue. But same situation as B. We don’t if this is only for now or future years. The tense used is a present tense. I am keeping it.

E, irrelevant. We want to know the impact of an action not the action itself. Also it addresses “currently”.

B or D, which one?

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B cannot be the answer actually because it talks about SPENDING which is already out of question as is mentioned in the passage as NO MORE SPENDING... So D is better
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Re: The deficit is the difference between the amount that the government  [#permalink]

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New post 22 Oct 2018, 08:39
AdityaHongunti wrote:
Fc733 wrote:
I don’t really like this question and the answer. The timing issue in the question is not really explained well.

“The current government has carried out all possible efforts to cut spending without any significant effect on the deficit. It then follows that the deficit will remain at the current level for a few years since _________________”

It’s obvious that the government has done something to cut the spending already. So the current level of the deficit is the level after government cut the spending. In such case if the “current level” is going to remain unchanged for a few years then there are two cases - no room to keep cutting the expenses or no room to increase the revenue, both have to be effective not just now but for the following a few years.

A, it says “currently”. It’s not relevant.

B, could be the right one since there is no room for more revenue when economy growth stops. And clearly the government is not able to stimulate the economy. This could be the answer but it’s wording is back. We don’t know if it’s a current situation or a situation that could remain for years. Since it doesn’t address “currently”, I could keep it.

C, exporting is only one way to increase the revenue and being compliant doesn’t necessarily mean that the room for more revenue is limited. This, it’s not right.

D, another potential answer. If the government doesn’t want to add tax then there is no potential room for more revenue. But same situation as B. We don’t if this is only for now or future years. The tense used is a present tense. I am keeping it.

E, irrelevant. We want to know the impact of an action not the action itself. Also it addresses “currently”.

B or D, which one?

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B cannot be the answer actually because it talks about SPENDING which is already out of question as is mentioned in the passage as NO MORE SPENDING... So D is better



B is not talking about government going to spend. B is talking about that the room for economy growth is none and that the room for government to stimulate by spending is none - it's about making economy alive and making revenue. Thus, B is not violating the premise. This is why I said I don't like the question and answer.
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Re: The deficit is the difference between the amount that the government  [#permalink]

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New post 27 Oct 2018, 09:37
This seems like a poor question as all its answers have holes. As for the two most hotly debated ones:

B - The economy is stagnant and does not allow for any more industrial spending (Industrial spending --> increased revenues is quite a leap, no matter who's doing it)

D - The government is against increasing the tax burden on its citizens (The government can raise taxes on corporates and increase revenues -- the stimulus does NOT mention "income tax")


I prefer A and think that the gripe about the poor use of the word "currently" doesn't compare to the logical holes in the other options.
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Re: The deficit is the difference between the amount that the government  [#permalink]

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New post 27 Oct 2018, 11:42
rohan2345 wrote:
The deficit is the difference between the amount that the government taxes in as revenue and the amount that it spends in a given year. There are only two ways to cut the deficit: raise revenue or cut spending. The current government has carried out all possible efforts to cut spending without any significant effect on the deficit. It then follows that the deficit will remain at the current level for a few years since _________________

Which of the following best completes the passage?

A- No practical means currently exist to raise revenues.

B- The economy is stagnant and does not allow for any more industrial spending.

C- The government has to comply to international limits placed on its export contacts

D- The government is against increasing the tax burden on its citizens

E- The government is currently focusing on internal revenue management

Source- Experts' Global


There are 2 ways to reduce deficits -

1. Increase Revenue
2. Reduce Spendings

The stimulus further states that spendings cannot be reduced, so the only effective way is to increase revenues ( By Taxation ), further, the highlighted part suggests that Deficits will remain at the same level for next few years and thinking leads us to the following assumptions -

1. Revenues do not Increase ( Govt will not Increase Taxes )
2. Revenues do not decrease - Resulting in more trade deficits ( As the stimulus suggests that trade deficits will remain stagnant at the current level for the next few years)

Option (D) clearly matches our pre-thinking, hence answer must be (D)
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Re: The deficit is the difference between the amount that the government  [#permalink]

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New post 09 Jun 2019, 01:09
Lol. I expect high quality questions. Looking from purely economics point of view, GOVt. can raise revenue even without raising taxes.

For those who are interested,

GOvt can make money by
1) Direct and Indirect taxes and,
2) profit generated from PSUs
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Re: The deficit is the difference between the amount that the government   [#permalink] 09 Jun 2019, 01:09
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