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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Hi,

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

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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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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