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# The Japanese economic model created strong domestic

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The Japanese economic model created strong domestic [#permalink]

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03 Nov 2009, 20:20
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The Japanese economic model created strong domestic industries through subsidies from its Ministry of Trade and by closing off competitive foreign firms to its domestic market. This strategy promised to help economic growth by incubating domestic industries. New Japanese industries could count on a known local demand and would be protected from competition by tariffs and other barriers. The program could reduce the amount of imports and therefore improve the nation's balance of trade.
Which of the following, based on the passage above, is a weakness in this economic strategy?

A) A protectionist policy will create animosity among other nations.

B) Fast growth of small industries will create a class of millionaires and increase the inequality of income.

C) Subsidies and import constraints keep domestic prices high and impose a burden on consumers.

D) Quotas are more regressive than tariffs.

E) The demand for the products made by the incubated industries would not be known.

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03 Nov 2009, 22:07
I am not sure, whether it is right GMAT question, because it looks like you need to know some economics in order to answer question.
IMO C.
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03 Nov 2009, 22:52
mirzohidjon wrote:
I am not sure, whether it is right GMAT question, because it looks like you need to know some economics in order to answer question.
IMO C.

Got it from an old practice test, not official GMAT. So 'agree with you that to infer C as a weakness in the strategy is not direct from the passage (economics background will help)...

Close foreign competition=>known local demand and protection by barriers=>reduce imports and INCREASE TRADE BALANCE. Nowhere there is any mention about burden on consumer/increased goods prices etc.

So we have to infer from the available choices. E and D can be ruled out. B doesn't seem to have any direct relation either.
I chose A because at least it talks about the possibility that TRADE BALANCE may get impacted if other nations stop importing from Japan... but the correct answer is C

Thanks for ur inputs.

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04 Nov 2009, 00:51
its C.
Rest all don't even budge the conclusion.
In closed economy,as there is no competition,the CPI can be totally governed by the manufacturers.Hence consumers are at the mercy of these people.

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12 Nov 2009, 17:29
I feel that the answer is C as well, for reasons already mentioned.
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12 Nov 2009, 22:48

A) A protectionist policy will create animosity among other nations.
-Out of scope

B) Fast growth of small industries will create a class of millionaires and increase the inequality of income.
-Out of scope

C) Subsidies and import constraints keep domestic prices high and impose a burden on consumers.
-Out of scope

D) Quotas are more regressive than tariffs.
-Out of scope

E) The demand for the products made by the incubated industries would not be known.
- By not knowing the demand for the products, incubated industries would either under produce or over produce the product. This situation could effect the imports. Hence this should be the correct answer

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13 Nov 2009, 05:13
IMO C.

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16 Nov 2009, 15:01
It is C, i do not get it, why you think that it is impossible to know the demand for incubated industries?
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25 Nov 2009, 18:53
A) is reasonable but not in the scope.
B) it is not clear how millionaires will be created from the question.
C) is correct because the ministry gives subsidies and imposes tariffs to promote local industry but imposes burden on local consumers; hence, as an economic strategy not good.
D) not talk of quotas in the question.
E)the demand would be known clearly because it is the local market which is fixed.
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20 Dec 2009, 15:50
mirzohidjon wrote:
It is C, i do not get it, why you think that it is impossible to know the demand for incubated industries?

I feel that E is correct.
One of the premises is that the manufactures would be able to sell the products with known demand, but E challenges this premise, which weakens it.

Am I missing something here?

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20 Dec 2009, 17:56
Will go with C.
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25 Jun 2010, 03:31

We could interprete the stem in another way:: the argument is flawed on which of following reasons?

Consider C and E:
- C: burden on consumers probably curbs the domestic goods consumption, but what will happen if the tariff and other barriers make import goods even more expensive? --> import is still at low level, balance of trade is still sound.

- E: this is the weakness of argument

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26 Jun 2010, 06:54
C . But not a CR question for GMAT May be from a RC
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28 Jun 2010, 20:32
Indeed C

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29 Jun 2010, 13:33
A) A protectionist policy will create animosity among other nations.
-- It might create or might not create and plus it not connected to the Japanese economy. Hence A is not a correct answer choice.

B) Fast growth of small industries will create a class of millionaires and increase the inequality of income.
-- Irrelevant. Hence cannot be a correct answer choice.

C) Subsidies and import constraints keep domestic prices high and impose a burden on consumers.
This is a correct answer choice. Premise states that domestic industries will help grow economy. However if subsidies and import constraints keep the domestic prices higher, eventually lead to increase in prices and destabilize the economy.

D) Quotas are more regressive than tariffs.
Neutral statement. Hence cannot be a correct answer choice.

E) The demand for the products made by the incubated industries would not be known.
Might be might not be. Hence cannot be a correct answer choice.

Thank You.

Thanks,
Akhil M.Parekh

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02 Jul 2010, 19:04
C it is.

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03 Jul 2010, 01:33
IMO C

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12 Jul 2010, 16:35
gmattokyo wrote:
The Japanese economic model created strong domestic industries through subsidies from its Ministry of Trade and by closing off competitive foreign firms to its domestic market. This strategy promised to help economic growth by incubating domestic industries. New Japanese industries could count on a known local demand and would be protected from competition by tariffs and other barriers. The program could reduce the amount of imports and therefore improve the nation's balance of trade.
Which of the following, based on the passage above, is a weakness in this economic strategy?

A) A protectionist policy will create animosity among other nations.

B) Fast growth of small industries will create a class of millionaires and increase the inequality of income.

C) Subsidies and import constraints keep domestic prices high and impose a burden on consumers.

D) Quotas are more regressive than tariffs.

E) The demand for the products made by the incubated industries would not be known.

+1 for C. But as was put by others, the question is not typical GMAT question or the question has to be reworded like..Which of the following if true....would weaken...

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26 Jul 2010, 01:59
Clearly C.

E is wrong, beacause it is stating that "The demand for the products made by the incubated industries would not be known.

Just respond to the following questions:
Does the Goverment (ministry of trade , whatever) is interested in promoting incubated industries? yes, it does, see stimuli (is closing off competitive foreign firms). Agree??
If interested, Will the Gov support promotion campaigns of goods produced by local firms? - of course, logically yes-

Does the Goverment (ministry of trade , whatever) is interested in promoting incubated industries? yes, it does, because it according to smimuli "is closing off competitive foreign firms to its domestic market." Key words are "competitive and is closing off".
If foreign firms are competitive and if Gov continues to close off acess to local market, will this create market inefficiences which may result in "keep domestic prices high and impose a burden on consumers" - clearly yes.

hien48 wrote:

We could interprete the stem in another way:: the argument is flawed on which of following reasons?

Consider C and E:
- C: burden on consumers probably curbs the domestic goods consumption, but what will happen if the tariff and other barriers make import goods even more expensive? --> import is still at low level, balance of trade is still sound.

- E: this is the weakness of argument

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26 Jul 2010, 08:54
+1 for C

Cheers,
S

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Re: Japanese economic model   [#permalink] 26 Jul 2010, 08:54

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