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The passage into U.S. law on October 3, 2008, of the $700 billion fina

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The passage into U.S. law on October 3, 2008, of the $700 billion fina  [#permalink]

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New post Updated on: 09 Sep 2019, 06:02
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based on 179 sessions

78% (02:55) correct 22% (03:12) wrong

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The passage into U.S. law on October 3, 2008, of the $700 billion financial-sector rescue plan is the latest in a long history of U.S. government bailouts, dating back to the Panic of 1792. It also marked the fourth time in 2008 that the government interceded to prevent the ruin of a private enterprise or the entire financial sector. Many experts assert that the perceived catastrophic effect of financial sector ruin justifies this bailout. However, this assertion overstates the long-term financial benefits of such a policy.

Such an assertion ignores fiscal and market realities. Federal politicians have granted themselves the ability to prevent companies from failing on the subjective, predictive assertion that to do otherwise would lead to economic turmoil. It is precisely because of such bailouts (and other government-sponsored economic interventions) that the United States has experienced such economic turmoil in the first place. The champions of interventionism fail to realize that their program implies the establishment of full government supremacy in all economic matters and ultimately brings about a state of affairs that threatens a sustainable free-market economy. If it is in the jurisdiction of the government to decide whether conditions of the economy justify government intervention, no sphere of operation is left to the market. Interventionist theory thus relies on a somewhat distorted picture of reality.

Interventionist doctrine implies that the market is free as long as it performs precisely as the government intends. Thus, the theory and the practice of interventionism ultimately tend to abandon the principles that originally distinguished the free enterprise system from systems largely based on central planning, such as the former Soviet economy. In a truly free market, financial sector entities should be allowed to succeed or fail based on individual merit. The current planned use of public monies to save companies with questionable balance sheets, ethics, and business practices, may work in the short run, but the ultimate long-term result will be one of financial insolvency.
1.The author of the passage is primarily concerned with
A. substantiating a claim about a historical event
B. reconciling two opposing ideas about a recent policy decision
C. disputing evidence the government uses to support legislation
D. analyzing two approaches to private-sector bailouts and evaluating their methodologies
E. criticizing a particular decision and the approach to fiscal policy it represents


2.It can be inferred from the passage that the author of the passage considers “central planning” (see underlined text) to be
A. already included in most conceptions of interventionism
B. based on free-market fiscal policy
C. an alternative to interventionism
D. a historical mistake not to be repeated
E. a new approach to economic problems


3.The author would most likely agree with which of the following statements?
A. Interventionism gives the government greater power than is generally acknowledged.
B. An economy that involves frequent use of private-sector bailouts can still be described as a free market.
C. The government was justified when it bailed out the states in order to ease the Panic of 1792.
D. Companies with questionable balance sheets will, without government assistance, almost always fail.
E. Government supremacy is preferable to a state of affairs where the failure of one firm may lead to the failure of many other firms.



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Originally posted by mehtakaustubh on 17 Aug 2013, 03:34.
Last edited by SajjadAhmad on 09 Sep 2019, 06:02, edited 1 time in total.
Updated - Complete topic (475).
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Re: The passage into U.S. law on October 3, 2008, of the $700 billion fina  [#permalink]

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New post 22 Dec 2015, 20:26
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3.The author would most likely agree with which of the following statements?
A. Interventionism gives the government greater power than is generally acknowledged.
"The champions of interventionism fail to realize that their program implies the establishment of full government supremacy in all economic matters and ultimately brings about a state of affairs that threatens a sustainable free-market economy."

2.It can be inferred from the passage that the author of the passage considers “central planning” (see underlined text) to be
D. a historical mistake not to be repeated
"interventionism ultimately tend to abandon the principles that originally distinguished the free enterprise system from systems largely based on central planning, such as the former Soviet economy."

1.The author of the passage is primarily concerned with:
E. criticizing a particular decision and the approach to fiscal policy it represents.
the first passage told about the bailouts in 2008 and 1792 and a drawback of these decision "this assertion overstates the long-term financial benefits of such a policy."
The second passage described how these decisions have negative impacts on the economics and change the theory of free market. Finally, the authors said that it is good for the short-term but harmful in the long-term.
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Re: The passage into U.S. law on October 3, 2008, of the $700 billion fina  [#permalink]

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New post 15 Apr 2018, 18:16
E
D
A
all correct

but I don't like question 2
Part of the reason I got it right is that I know the history of the economy in general and this topic interests me.
And Soviet central planning economy is definitely a failure, the same way any other non-Capitalistic economy were/are.

also
Interventionism (hence the bailout) will lead to long-term economic disaster (a mistake made in the past) is what the author intends to say.
"ultimate long-term result will be one of financial insolvency."


Hence the answer for #2 should be (D)

2.It can be inferred from the passage that the author of the passage considers “central planning” (see underlined text) to be

A. already included in most conceptions of interventionism

D. a historical mistake not to be repeated
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Re: The passage into U.S. law on October 3, 2008, of the $700 billion fina  [#permalink]

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New post 15 Apr 2018, 18:19
ThorianHulk24 wrote:
The OA for Question 3 is particularly debatable as the author says "financial sector entities should be allowed to succeed or fail based on individual merit." So if the case of individual merit applies to companies in the private sector, shouldn't balance sheet cheating companies fail w/o govt. intervention?


D. Companies with questionable balance sheets will, without government assistance, almost always fail.

This answer is way too extreme. The passage never mentioned a destined failure of any company if there're questionable balance sheets.
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Re: The passage into U.S. law on October 3, 2008, of the $700 billion fina  [#permalink]

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New post 23 Jul 2018, 10:45
Nice passage. All correct.
Another instance that proves that sensing the author's tone is very crucial in passages dealing with Laws such as this one.
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Re: The passage into U.S. law on October 3, 2008, of the $700 billion fina  [#permalink]

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New post 24 Jul 2018, 08:36
TaN1213 wrote:
Nice passage. All correct.
Another instance that proves that sensing the author's tone is very crucial in passages dealing with Laws such as this one.

Hi TaN1213,

How are you?
Can you please explain question no 2? I fell for A.
Help is well appreciated
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Re: The passage into U.S. law on October 3, 2008, of the $700 billion fina  [#permalink]

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New post 24 Jul 2018, 09:42
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arvind910619 wrote:
TaN1213 wrote:
Nice passage. All correct.
Another instance that proves that sensing the author's tone is very crucial in passages dealing with Laws such as this one.

Hi TaN1213,

How are you?
Can you please explain question no 2? I fell for A.
Help is well appreciated


Hello arvind910619,

I am very well. Hope you are doing well too.
Answer to Q2 lies in the following excerpt from the passage-
"Thus, the theory and the practice of interventionism ultimately tend to abandon the principles that originally distinguished the free enterprise system from systems largely based on central planning, such as the former Soviet economy. In a truly free market, financial sector entities should be allowed to succeed or fail based on individual merit. "

While option A is close to be correct, option D is better as it can be found explicitly in the portion where central planning is discussed (excerpt above). The bold part says that central planning should not take place. The preceding sentence says that it had happened in the former Soviet economy. Author is clearly not very happy about this and considers it a mistake, as evident from the immediately succeeding bold part suggestion that he/she gives. (Pay attention whenever you find suggestions using the word 'should' in any RC, as it is what the author believes and the reason why he/she writes this passage) The mention of FORMER Soviet economy is done to express his/her resentment towards central planning.
Had option D not been given, A would have been the credible answer.
Hope this helped.
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Re: The passage into U.S. law on October 3, 2008, of the $700 billion fina  [#permalink]

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New post 24 Jul 2018, 09:58
TaN1213 wrote:
arvind910619 wrote:
TaN1213 wrote:
Nice passage. All correct.
Another instance that proves that sensing the author's tone is very crucial in passages dealing with Laws such as this one.

Hi TaN1213,

How are you?
Can you please explain question no 2? I fell for A.
Help is well appreciated


Hello arvind910619,

I am very well. Hope you are doing well too.
Answer to Q2 lies in the following excerpt from the passage-
"Thus, the theory and the practice of interventionism ultimately tend to abandon the principles that originally distinguished the free enterprise system from systems largely based on central planning, such as the former Soviet economy. In a truly free market, financial sector entities should be allowed to succeed or fail based on individual merit. "

While option A is close to be correct, option D is better as it can be found explicitly in the portion where central planning is discussed (excerpt above). The bold part says that central planning should not take place. The preceding sentence says that it had happened in the former Soviet economy. Author is clearly not very happy about this and considers it a mistake, as evident from the immediately succeeding bold part suggestion that he/she gives. (Pay attention whenever you find suggestions using the word 'should' in any RC, as it is what the author believes and the reason why he/she writes this passage) The mention of FORMER Soviet economy is done to express his/her resentment towards central planning.
Had option D not been given, A would have been the credible answer.
Hope this helped.

Hi TaN1213,

Well now i think D is much better than A.
I think author's tone can help us in question such as this.

Thanks you for your explanation :-)
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Re: The passage into U.S. law on October 3, 2008, of the $700 billion fina  [#permalink]

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New post 15 Nov 2018, 00:12
Agreed with you guys. It is the author, who is most important while reading through an RC Passage. Many people, many a times don't realise this and end up reading / understanding the passage from their individual perspective.

One thing that we also need to understand is that it takes a slightly different sort of reading to understand the author's perspective completely. You can watch this Youtube video for more information on that.

https://www.youtube.com/watch?v=kpJtVfK ... CK&index=3

Happy prepping.

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Re: The passage into U.S. law on October 3, 2008, of the $700 billion fina  [#permalink]

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New post 16 Nov 2018, 20:59
Though I agree that D is least worst than other choices, I still think D is too far fetched . Calling "central planning " a mistake is nowhere warranted. The author just states the use of central planning is what Russia used to follow. and free market is contradictory to "capital planning" . BUt calling this a istake not to be repeated is beyond the scope. Author never tells us that US actually followed capital planning. Seconly, it seems that the Test makers are making their own assumption regarding "soviet union" ...as in whatever it does is wrong .
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Re: The passage into U.S. law on October 3, 2008, of the $700 billion fina   [#permalink] 16 Nov 2018, 20:59
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