The function of capital markets is to facilitate an exchange of funds

Hi gmat8998

Interesting question. For this one, I might first summarize in my head what I think the argument is. Did you do this?

Here is my summary per paragraph: P1: Capital markets don't actually help everyone evenly. P2: Example of how capital markets are screwed up and unfair in US minority communities. P3: Most theoretical analysis of capital markets assumes a bunch of things that aren't true in reality.

OK. So what is the main theme?
My version: Capital markets don't actually work in reality the way they do/should do in theory.

But is there ever one sentence in the passage that says this main theme? NO. I had to summarize it across the main ideas of the three paragraphs.

So if we consider (A) giving examples that support a conventional generalization
Um, what conventional generalization would we be talking about? Remember, conventional means usual/typical/accepted/mainstream. But if there is any conventional generalization here, it would be that capital markets work in a certain (predictable/textbook) way, and our author is actually arguing AGAINST that, not to SUPPORT it.

So let's look at (D) showing that omissions in a theoretical description make it inapplicable in certain cases
Sounds good to me. The author shows that there are holes/gaps/missing parts in the theory that mean the theory actually cannot describe what is truly going on in certain cases - for example, in US minority communities.

Let me know how you were thinking and if this makes it clearer, please.
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jennpt Hi .. Yeah I did summarize individual paras but couldn't decipher the main idea as close as you have. Also,conventional generalization is something i couldn't understand.
Really good analysis this! Hard to come up with a main point with such precision. Thanks.

Hi,

Can someone please explain q. 280? confused between options C and D. Also, question 282

Question 5 (book question 280)

The author begins the passage by arguing against the idea that capital markets "facilitate an exchange of funds among all participants," because some participants are at a disadvantage in these markets.

He/she then states that one group of disadvantaged participants are members of minority communities. How are these communities disadvantaged? According to the author, the capital markets:

• do not provide minority communities with access to the "aggregate flow of funds," and
• do not generate credit or investment pathways to fund economic development in minority communities

One underlying reason for this dysfunction is that minority communities have a limited amount of financial resources. And finally, one the effect of this disadvantage is that it increases income inequality, which in turn makes capital more concentrated in certain types of investment.

Let's take a look at the evidence for (D):

From the above analysis, we know that the capital market does not generate credit or investment vehicles to fund economic development in minority communities. However, we are not given any information to confirm whether the government provides subsidies to fill this gap. Because we have no idea whether minorities are granted government subsidies, we cannot infer (D). Eliminate this answer choice.

Take a look at (C):

That's a long answer choice! (C) tells us that minority communities do not have access to an "expected" amount of funds for investment.

In the last paragraph of the passage, we are told that traditional market analysis studies assume that "each individual in the community at large has the same access to the market and the same opportunity to transact and to express the preference appropriate to his or her individual interest."

However, the author argues against this notion by stating that capital markets do not provide minority communities access to the flow of fund in the United States.

Because traditional analyses predict equal access to funds, and the funds of minority communities do not have access to the flow of funds, we can infer that these communities do not have access to the "expected" amount of funds for investment.

(C) is the correct answer to question #5.

Question 7 (book question 282)

The author lays out the views of traditional (or conventional) analysts in the last paragraph of the passage. These analysts

• pay little attention to the issues discussed in the preceding paragraph -- namely, how the structure of the market and unequal income distribution impact market activity
• view people as independent and homogeneous (or identical to one another), and
• assume that all participants have equal opportunities to transact in the marketplace

This last bullet fits well with (E):

(E) is the correct answer to question #7.

I hope that helps!
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Para-1: Summary - Author talks about Capital Markets’ function sort of an ideal in nature but it’s not and gives a reason for that.

Para-2: Summary – Author continues his/her idea about the reason behind the shortcoming of function by giving an example. The example takes minority communities into consideration and enumerates what, how and why of the problem. He/she mentions that financial system does not create enough ways so that investment can be generated and gives another reason behind that i.e. rationing system. Thus, existing system is followed which is flawed in itself further increasing the inequality gap thus leading to non-uniform distribution of capital.

Para-3: Summary – In this para author refers to analysis of markets. He/she mentions that studies in general ignore the shortcomings and pay little attention to actors actually affecting capital market and makes assumption that every individual has perfect knowledge of the capital market and has same access/opportunities.

Overall Summary – Capital markets don’t work as they should. They make certain assumptions leading to non uniformity in the market i.e. certain pockets are left out.

1.
276. The main point made by the passage is that

(A) financial markets provide for an optimum allocation of resources among all competing participants by balancing supply and demand – WRONG. Nowhere it is mentioned in the passage that allocation is optimum.
(B) the allocation of financial resources takes place among separate individual participants, each of whom has access to the market – WRONG. Even if this is true it only pertains to a part of the passage
(C) the existence of certain factors adversely affecting members of minority groups shows that financial markets do not function as conventional theory says they function – CORRECT. This matches our summary.
(D) investments in minority communities can be made by the use of various alternative financial instruments, such as stocks and bonds – WRONG. The option covers only a part of scope of passage.
(E) since transaction costs for stocks, bonds, and other financial instruments are not equally apportioned among all minority-group members, the financial market is subject to criticism – WRONG. ‘Apportioned equally among all minority group’s subtly changed from all community members. Covers only a part of scope of passage even if true.

2.
277. The passage states that traditional studies of the financial market overlook imbalances in the allocation of financial resources because

(A) an optimum allocation of resources is the final result of competition among participants – WRONG. If this is true it is causaly wrong.
(B) those performing the studies choose an oversimplified description of the influences on competition – CORRECT. Refer para 3 second line “analysts’ inherent preferences” for the simple model’.
(C) such imbalances do not appear in the statistics usually compiled to measure the market's behavior. – WRONG. No mentioned anywhere in the passage.
(D) the analysts who study the market are unwilling to accept criticism of their methods as biased – WRONG. No mentioned anywhere in the passage.
(E) socioeconomic differences form the basis of a rationing mechanism that puts minority groups at a disadvantage – WRONG. Might be true but this is not the reason behind overlooking.

3.
278. The author’s main point is argued by

(A) giving examples that support a conventional generalization – WRONG. Author is not supporting anything conventional.
(B) showing that the view opposite to the author’s is self-contradictory – WRONG. Opposite view not mentioned anywhere in the passage.
(C) criticizing the presuppositions of a proposed plan – WRONG. Irrelevant.
(D) showing that omissions in a theoretical description make it inapplicable in certain cases – CORRECT. A model with assumptions as proposed by analyst might not work actually n real life.
(E) demonstrating that an alternative hypothesis more closely fits the data – WRONG. Alternative hypothesis is not mentioned anywhere in the passage.

4.
279. A difference in which of the following would be an example of inequality in transaction costs as alluded to in lines 40-43 [Moreover, it is assumed that transaction costs for various types of financial instruments (stocks, bonds, etc.) are equally known and equally divided among all community members.]?

(A) Maximum amounts of loans extended by a bank to businesses in different areas – WRONG. Loans’ amount may vary as much as possible depending on the scale of business.
(B) Fees charged to large and small investors for purchasing stocks – CORRECT. Though this might look straight forward and leads to doubting this option this is correct in the sense that for a single transaction between a large and a small investor both should be charged same. Buying both stocks and bonds then both should be charged same amount. Any difference in the charges would lead to inequality.
(C) Prices of similar goods offered in large and small stores in an area – WRONG. Prices may vary depending on the cost entailed by the stores which customer must be known off.
(D) Stipends paid to different attorneys for preparing legal suits for damages – WRONG. Stipends may differ in that an experienced attorney might have huge compared to a relatively newbie.
(E) Exchange rates in dollars for currencies of different countries – WRONG. Rates may vary for different reasons so can’t be treated as inequality.

5.
280. Which of the following can be inferred about minority communities on the basis of the passage?

(A) They provide a significant portion of the funds that become available for investment in the financial market. – WRONG. Significant proportion is neither mentioned nor can be inferred from the passage.
(B) They are penalized by the tax system, which increases the inequality of the distribution of income between investors and wage earners. – WRONG. This one is closest of being right answer for simply using word penalized but a closer look and understanding shows that it changes the meaning of the passage.
(C) They do not receive the share of the amount of funds available for investment that would be expected according to traditional financial-market analysis. – CORRECT. Since the passage is about inequality among communities this makes sense.
(D) They are not granted governmental subsidies to assist in underwriting the cost of economic development – WRONG. Govt. granting subsidies to minority communities can’t be inferred rather a rationing mechanism is referred here which causes further problems.
(E) They provide the same access to alternative sources of credit to finance businesses as do majority communities. – WRONG. Exactly opposite to what is discussed in the passage even if it is true.

6.
281. According to the passage, a questionable assumption of the conventional theory about the operation of financial markets is that

(A) creditworthiness as determined by lenders is a factor determining market access – WRONG. Creditworthiness is nowhere mentioned in the passage.
(B) market structure and market dynamics depend on income distribution – WRONG. Exactly opposite to what is discussed in the passage.
(C) a scarcity of alternative sources of funds would result from taking socioeconomic factors into consideration – WRONG. Incorrect causual relationship.
(D) those who engage in financial-market transactions are perfectly well informed about the market – CORRECT. Refer para 3 where it is mentioned that every individual has equal access and opportunity in the market which is actually not the case in reality.
(E) inequalities in income distribution are increased by the functioning of the financial market – WRONG. Not an assumption made anywhere rather existing system increases inequalities. Refer Para 2.

7.
282. According to the passage, analysts have conventionally tended to view those who participate in financial markets as

(A) judging investment preferences in terms of the good of society as a whole – WRONG. Irrelevant.
(B) influencing the allocation of funds through prior ownership of certain kinds of assets – WRONG. Irrelevant.
(C) varying in market power with respect to one another – WRONG. Close but passage clearly mentions that every individual has equal access and opportunity.
(D) basing judgments about future events mainly on chance – WRONG. Irrelevant.
(E) having equal opportunities to engage in transactions – CORRECT. Refer para 3.

Completed in 11:36 min. All correct.
I could not believe myself since my RC is not good.
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Hi,
in question 278 i marked option C
Can someone pls explain why option D is better than option C

Does the author criticize the presupposition of the proposed plan or does he show the omissions?

Look for negative words in the passage to prove C as correct. You might not find one. Overall, get a hang of tone of author in the passage to better understand the it.
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As I've explained here — including a full explanation for why we keep choice (D) — the author's main point in this passage is that a conventional view of market participation and the function of capital markets is inaccurate.

This question asks: How does the author argue this point?


If (C) were true, we'd expect to see the author identify a proposed plan and then criticize that plan's presuppositions.

However, there's no evidence of a "proposed plan" in this passage.

The author describes how traditional financial analysis ignores important issues and deficiencies. But traditional analysis and conventional wisdom are not the same as a "proposed plan."

Choice (C) doesn't match up with the passage, so we can eliminate it and move on.

I hope this helps!
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Hi, Can someone explain in Q.5 , what is wrong with B?

Read the explanation posted earlier by GMATNinja

https://gmatclub.com/forum/the-function ... l#p2340994

Thank you

Took me 17 mins 24 seconds to complete but I got all 7 correct! Is the timing good or do I need to improve?
I spend some 3-4 minutes re-evaluating answer choices and further analyzing the answer choices for any flaws that I may have missed during the reading or Argument Analysis.

I feel there is scope of improvement on the timing part and I could improve by 3 minutes but not more than it.

Here is the breakdown:
1. I took 5 mins 21 seconds to read the passage.
2. At least 9 minutes to answer 7 questions (averaging around 1:15 mins per question)
3. upward of 3 minutes in evaluating answer choices.

Got distracted in the middle of answer choices as a Coca-Cola ad popped up in my head!!!!

Hi GMATNinja egmat BrightOutlookJenn ,and others are welcome,

I don't understand why Question 278 asks by using passive voice.

This passive voice question seems like asking which choice opposes the author’s main point.
While choice(D) seems like supporting the author's main point that omissions in a theoretical description make it inapplicable in minority communities.

Please clarify my understanding.

Hi TorGmatGod

Thanks for the tag and question.



Yes, it sounds like you are having a misunderstanding of argue here. I think you are including the word or the idea of "against" when you are reading this question.

A person can argue FOR something or AGAINST it. Let's use retaking the GMAT as an example ...

1. She argued for retaking the GMAT. (She was in favor of retaking the exam)
2. She argued against retaking the GMAT. (She was against a retake.)
3. She argued that the GMAT should be retaken. (Same meaning as #1, just with a passive construction.)

Let's get this example closer to the question you are considering ...
4. Her main point was that you should retake the GMAT. She argued this point by giving statistics about the average improvement in scores on second attempts.

What does the second sentence in #4 mean? She argued this point = She supported this idea
... and then it goes on to say how she supported the idea.

We could make the second sentence in #4 passive and it would be close to the form of Question 278:
5. Her point was argued by giving statistics about the average improvement in scores on second attempts.

(Note that I haven't changed the meaning from #4 to #5; I just switched from active voice to passive voice.)

Question #278 is asking how the author supported their main point.

Does this help? Please let us know.
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I will try to explain question number 6 (Q No. 281).
Last line of the passage is - Moreover, it is assumed that transaction costs for various types of financial instruments (stocks, bonds, etc.) are equally known and equally divided among all community members.
We can extract the two stated assumptions.
1. it is assumed that transaction costs of financial instruments are equally known among all community members. => Assume that every community member understands the stocks equally. It is assumed that no one has less knowledge about stocks and no one has more knowledge about stocks. Everyone in the group has sufficient equal understanding.
2. it is assumed that transaction costs of financial instruments equally divided among all community members. => Assume that every community member has 10 stocks each.

Now we have to figure out an assumption that is stated in the passage.
(A) creditworthiness as determined by lenders is a factor determining market access
(B) market structure and market dynamics depend on income distribution
(C) a scarcity of alternative sources of funds would result from taking socioeconomic factors into consideration
(D) those who engage in financial-market transactions are perfectly well informed about the market => Choice D re-states first assumption we discussed above. It is an assumption that everyone in the market is well informed. All other options are either incorrect or partially correct.
(E) inequalities in income distribution are increased by the functioning of the financial market

GMATNinja
Q278... the main point is argued by
I assumed we need to weaken the author's main point.
Does "argued by" supported by?

Also can you explain in Q280, why C is the right choice.

Thank you in advance.

Question 3 (or 278)

Question 3 (or book question 278) is asking us how the author argues his/her point. In other words, how does the author make his/her case? So, we don't have to weaken or support the argument -- instead, we have to find the answer choice that best describes the author's way of reaching his/her main point.

In this case, the author argues his/her point by showing that traditional models don't account for imperfections and inequalities in a capitalist marketplace. That's best captured by (D), which is the correct answer to question 3.

For what it's worth: this is a pretty old question, and I can't think of any newer ones that use phrasing like this. So, don't worry too much about this exact issue.

Question 5 (or 280)

The author's overall point is that capital markets aren't perfect, because certain minority groups don't have equal access to information and funds. This is most clearly stated at the beginning of the second paragraph: "Within minority communities, capital markets do not properly fulfill their functions; they do not provide access to the aggregate flow of funds in the United States."

The author goes on to say that "traditional" studies ignore this issue by assuming that "that each individual in the community at large has the same access to the market and the same opportunity to transact and to express the preference appropriate to his or her individual interest." The author's evidence goes against this assumption.

From this, we can infer the information in (C):

Traditional analyses assume that everyone has equal access, but the evidence in the passage shows otherwise.

(C) is the correct answer to question 5.

I hope that helps!
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Can someone explain why we cant choose C in 278? My verification of each word:-
criticizing the presuppositions of a proposed plan

Most traditional financial-market analysis studies ignore financial markets’ deficiencies in allocation because of analysts’ inherent preferences for the simple model of perfect competition

presuppositions = analysts’ inherent preferences
proposed plan = simple model of perfect competition
criticizing = throughout the passage the author is criticizing the ignorance
Evidence:- Conventional financial analysis pays limited attention to issues of market structure and dynamics, relative costs of information, and problems of income distribution.

Q.278
(C) criticizing the presuppositions of a proposed plan
(D) showing that omissions in a theoretical description make it inapplicable in certain cases

Why is c incorrect? presuppositions is assumptions. It is correct because of wording proposed plan?
Please help.

Follow the posts in the links below

https://gmatclub.com/forum/the-function ... l#p2098166

https://gmatclub.com/forum/the-function ... l#p2351698

https://gmatclub.com/forum/the-function ... l#p2792454

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