The Economist Reading Challenge Week 4: Article 2

1. According to the article, which of the following would most directly cause an inflation problem for the economy?

->Q: What would most directly cause an inflation problem for the economy?
-> 'In March alone prices rose by 0.6% compared with the previous month, the fastest pace since 2012. Much of that was driven by a big increase in petrol prices but even the “core” consumer-price index (CPI), which strips out food and energy prices, was up by 0.3% (an annualised pace of 4.1%). Services prices in particular have started to rebound: hotel rooms were 4.4% dearer than a month earlier and rent, a big component of the index, has firmed in recent months'

From the above sentences, it may seem that continuing price increases would most directly causes the inflation problem

A. An inflation of more than 2%
-> An inflation can be more than 2%. But it does not always cause problem.
B. Prices continuing to increase
-> Yes
C. Monetary-policy framework
-> Author mentioned policy framework as a suggestion for the Fed. It would not directly cause an inflation problem.
D. The Fed showing a lack of concern
-> Even if the Fed show a lack of concern, it may not cause a problem in this case.
E. An economic recovery Correct
-> the combination of base effects and a boomy reopening(recovery) can cause problem. But only economic recovery is not responsible in this case.


2. The author implies that the March CPI increase was:

-> The increase in headline inflation was the biggest since November 2009, when similar “base effects” were in play after the global financial crisis.
Nov 2009--> Similar Base effect--> Similar price increase.
March 202--> Similar Base effect--> Similar price increase.

A. troublesome. No
B. superficial.
-> Nowhere in the passage talks about superficiality of CPI increase.
C. significant.
-> We can not infer that.
D. ineffective.
-> obviously no.
E. anticipated. Yes


3. The primary purpose of the passage is to:

-> Passage: Info+
Topic : Inflation
Scope: Rise in Inflation
Author's POV: Concern for rise in inflation


A. assess the validity of a certain view.
-> The passage does not start with a view. Here, the author is not trying to validate any view.
B. distinguish between two phenomena.
-> There is only one phenomenon which is rise in inflation. Moreover, the author did not make any distinction.
C. identify the causes of a problem.
-> This option is a descriptive one. The cause of the problem is given in the first paragraph. Moreover, author was concerned about inflation, and gave little opinion in the last paragraph.
D. describe a current trend.
-> The passage is not a purely descriptive one. We can easily eliminate this option.
E. allay concern about a particular phenomenon. Correct
-> Yes, Author expressed his concern about rise in inflation

1. According to the article, which of the following would most directly cause an inflation problem for the economy?

'It would be wrong, however, to dismiss the rise in inflation as a mere mathematical quirk. America’s economy is emerging from the downturn at great speed as jobs return and vaccinated consumers start spending'
'Capital Economics, a consultancy, predicts that the combination of base effects and a boomy reopening will drive the headline annual rate of inflation close to 4% by May'

A. An inflation of more than 2%
-The Fed's target inflation is 2%. An inflation of more than 2% may not cause problem.
B. Prices continuing to increase
-Check the second paragraph. The continuing increase in price would not cause problem, rathe the boomy reopening will generate problem.
C. Monetary-policy framework
-'Its new policy framework seeks to overshoot its 2% target temporarily after recessions, in order to make up lost ground'
-Monetary-policy framework is used to compensate lost inflation, not to generate inflation problem.
D. The Fed showing a lack of concern
-The Fed just mentions inflation as a temporary problem. It's not a lack of concern.
E. An economic recovery Correct
-> the combination of base effects and a boomy reopening(recovery) can cause problem. But only economic recovery is not responsible in this case.


2. The author implies that the March CPI increase was:

A. troublesome. Yes
B. superficial. Incorrect
C. significant. Incorrect
D. ineffective. Incorrect
E. anticipated. Incorrect


3. The primary purpose of the passage is to:

A. assess the validity of a certain view.
-Where is the view? Is there any evaluation of this so called view? No
B. distinguish between two phenomena.
- Where are the two phenomena?
C. identify the causes of a problem.
-Did not cover the whole passage, Partially covered.
D. describe a current trend.
-To express current trend is not the main focus of the passage. Yes, data about rise in inflation is given. But the focus on the rise in inflation, possible cause, and a suggestion.
E. allay concern about a particular phenomenon. Correct
-Check the topic of the passage. 'Rise in inflation and its cause'

Hello everyone here

We are closing the competition mode on this post, all the replies being taken for the evaluation and the winner will be announced on Monday at around 8am Pacific Time. Thank you for your participation.

Good Luck!

Great work on dealing with this rather technical passage. Below are a few comments on the questions.

Q1

The question asks what the most DIRECT cause is.

This is answer (B), as supported by the 3rd paragraph:

“The Federal Reserve targets annual inflation of 2%..... Still, if prices rise…. as they roughly have in recent months, base effects mean that the target will soon be exceeded in annual terms”

In less fancy words, this states that if prices continue to rise the inflation will continue beyond the Fed’s target, resulting in an inflation problem. Additional support can be found in the last sentence of the second paragraph: “The combination of base effect [=price increase] and a boomy reopening will….”

Though some of the other answers are certainly related, they are less direct than the pricing increase discussed above.


Q2

(C) significant is correct because of the quotes you correctly identified: the passage specifically states that the increase had meaning and was larger than expected. For this reason, it is also better than (E) anticipated: though some increase was expected, the magnitude of the increase was not.


Q3

As many suggested, (D) is the best at capturing the informative tone of the passage. The author does not seek to calm people down/address their worries as in (E) allay concern, which seems to be the other most common choice.

Winner will be announced tomorrow at around 8am Pacific Time.

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