Irrespective of the general state of the economy, paying less for the

Question

Irrespective of the general state of the economy, paying less for the same thing appeals to most consumers, who seem to have an intuitive dislike for inflation. But much as we may like to pay less, a sustained decline in prices, deflation, may not be in our best interests. Deflation, in fact, is considered to be a bigger evil than inflation, and evokes strong action by policymakers who would try everything possible to prop up prices. Deflation often results from a slowdown in which reduction in demand vis-à-vis supply causes prices to dip. With a sharp decline in prices, consumers tend to postpone purchases in the belief that prices will head further lower. This adds to the pressure on businesses, which in addition to a fall in prices also see an accumulation of inventory. Production cuts are hence resorted to, resulting in factory closures and consequent layoffs or salary cuts. With unemployment increasing, income levels in the economy fall, leading to further cuts in consumer spending and more pressure on prices. A vicious cycle emerges; the cascade effect is felt across sectors, and the economy goes into a defeatist mode.

To prevent deflations and to tackle the downward spiral caused by them, governments resort to large-scale spending, undertaking massive projects to increase employment, incomes, and prices and pumping in huge sums of money to propel demand. For instance, in the aftermath of the financial market crash in 2008, the US government undertook big-ticket stimulus measures and QE (quantitative easing) to revive the economy.

However, not all dips in prices are bad. A fall in prices of goods and services due to technological innovations and increased competition could actually benefit both the consumers and the producers. Such a situation is very different from deflation, which affects prices across the economy on a sustained basis (mainly due to decreasing demand or liquidity problems) and which should indeed be considered a red flag.   1 
1.Which of the following describes the function of the final paragraph?
A. To raise a consideration to add to the understanding of a phenomenon
B.To differentiate between different kinds of situations that are mistaken for one another
C.To introduce a discussion on an aspect related to a phenomenon explained earlier in detail 
D.To give information that is not conflicting with the definition of a phenomenon discussed earlier
E.To warn against a common generalization

2 
2. Which of the following statements would the author most likely agree with?
A.Although inflation can be beneficial for the economy deflation cannot be.
B.The decision to buy a product later in the hope of benefitting from a further price reduction is part of the cyclical chain of events that breeds deflation.
C.Deflation has little in common with dips in prices that are not substantially caused by decreasing demand.
D.Production cuts undertaken due to accumulated inventory help producers deal with an excess supply, leading to a momentary increase in prices. 
E.Whenever supply exceeds current demand, deflation occurs.

3 
3.As per the passage, which of the following would most likely be considered a dip in prices beneficial to both the consumer and the producer?
A.Because of a breakthrough in diamond mining, the price of the diamond dips, with it becoming affordable for more people but losing its unique selling appeal as a luxury item.
B.Because of the cancellation of an order, the producer reduces the price of the goods in stock considerably and sells them to another buyer. 
C.Because of a change in policy, producers can now procure raw materials for producing garments at cheaper prices from nearby countries and hence save on their cost of production.
D.Because of an increasing competition from cheaply produced and imported goods, the local producers reduce the prices of their goods to sell off their existing stock at initiate production cuts.
E.Because of a new technology, the manufacturers of personal computers are able to reduce their cost of production and pass these savings to the consumers as well by lowering the prices.

4 
4.Which of the following is mentioned in the passage?
A.Most people have a natural dislike for deflation.
B.Those people who lose their jobs in deflation keep postponing their purchasing decisions in the hope that prices will decrease further.
C.Large-scale spending by the government is one of the most effective ways to tackle deflation.
D.The financial market crash of 2008 was caused by deflation in the economy.
E.The effect of sustained price rise is considered less harmful than that of sustained price fall.

Nikhil · Accepted Answer

1. Which of the following describes the function of the final paragraph?

A. To raise a consideration to add to the understanding of a phenomenon

Correct

the function stated in this choice is indeed the purpose of the final paragraph.

B. To differentiate between different kinds of situations that are mistaken for one another

Incorrect : Irrelevant

First of all, there is no given information to infer that the given two situations are mistaken for each other. Second of all, the author does differentiate between the two situations but that is done in order to make us understand deflation a bit better.

C. To introduce a discussion on an aspect related to a phenomenon explained earlier in detail

Incorrect : Irrelevant

The phenomenon discussed in the earlier part of paragraph is deflation. The aspect being discussed in third paragraph is “dip in prices”. But this aspect is NOT related to deflation.

D. To give information that is not conflicting with the definition of a phenomenon discussed earlier

Incorrect : Irrelevant

The information given about the “not necessarily bad price dip” indeed doesn’t conflict with the discussion earlier but the purpose of the author is not to just give this information. It is to give this information to make the reader understand a concept better.

E. To warn against a common generalization

Incorrect : Out Of Scope

The purpose of the author could have been to warn the reader mistaking every price dip as deflation. However, there is no given information to conclude that such a generalization is common.

2. Which of the following statements would the author most likely agree with?

A. Although inflation can be beneficial for the economy deflation cannot be.

Incorrect : Out Of Scope

There is no given information on this kind of comparative analysis. While pitching them against each other, the author states that deflation is considered a bigger evil than inflation, meaning that the harmful effects of deflation are considered worse than those of inflation. However, this is not sufficient information to conclude that inflation can be beneficial.

B. The decision to buy a product later in the hope of benefitting from a further price reduction is part of the cyclical chain of events that breeds deflation.

Correct

The author mentions clearly in the first paragraph that the decision to delay purchasing adds to the pressure faced by producers that in turn leads to unemployment and even less demand for goods, decreasing prices even further. Hence, we can infer the statement given in choice B.

C. Deflation has little in common with dips in prices that are not substantially caused by decreasing demand.

Incorrect : Out Of Scope

In the last paragraph, the author differentiates between a dip caused by factors other than decreasing demand and deflation. On the basis of this information, we cannot conclude that deflation does not have a lot in common with dips not SUBSTANTIALLY caued by decreasing demand.

D. Production cuts undertaken due to accumulated inventory help producers deal with an excess supply, leading to a momentary increase in prices.

Incorrect : Out Of Scope

The author states in the first paragraph that the producers resort to production cuts since they have enough stock in their inventory (because of lack of sufficient demand). However, nowhere is it indicated or given that these cuts lead to any kind of increase in prices. In fact, if anything, we are told that the unemployment caused by these cuts leads to further decrease in prices.

E. Whenever supply exceeds current demand, deflation occurs.

Incorrect : Out Of Scope

We are told that deflation often occurs in a slowdown when the demand is less compared to the supply. However, this statement does not mean that every time the demand is less, there will be deflation.

3. As per the passage, which of the following would most likely be considered a dip in prices beneficial to both the consumer and the producer?

A. Because of a breakthrough in diamond mining, the price of the diamond dips, with it becoming affordable for more people but losing its unique selling appeal as a luxury item.

Incorrect : Opposite

We are told that though the diamond becomes cheaper, it loses its unique selling appeal as a luxury product. So, it is possible that many people may not want to buy it because it is not considered luxurious anymore. In such a situation, the dip in price benefits neither the consumer nor the producer.

B. Because of the cancellation of an order, the producer reduces the price of the goods in stock considerably and sells them to another buyer.

Incorrect : Partial Scope

Although the buyer who bought the product at a cheaper price might have benefitted from the deal, the producer had to compromise on its profits because of a significant reduction in price. So, the producer, in all likelihood, did not benefit from the situation.

C. Because of a change in policy, producers can now procure raw materials for producing garments at cheaper prices from nearby countries and hence save on their cost of production.

Incorrect : Out Of Scope

Although we are told that the producers will realize savings on their cost of production, we are not told whether they lower their prices because of these savings. Hence the benefit to the consumer is uncertain.

D. Because of an increasing competition from cheaply produced and imported goods, the local producers reduce the prices of their goods to sell off their existing stock at initiate production cuts.

Incorrect : Opposite

Although the cause of price dip is not a reduction in demand, the effect is production cuts- something that is listed in the passage as a cause for perpetuating deflation. Thus this scenario does not benefit anyone.

E. Because of a new technology, the manufacturers of personal computers are able to reduce their cost of production and pass these savings to the consumers as well by lowering the prices.

Correct

In this situation the benefits of the new technology are reaped both by the producer and by the consumer. Here’s how:

Producer = lower costs due to new technology

Consumer = lower price because of lower costs

4. Which of the following is mentioned in the passage?

A. Most people have a natural dislike for deflation.

Incorrect : Opposite

We are told in the first paragraph that most people have a natural dislike towards inflation and they actually like lower/dipping prices.

B. Those people who lose their jobs in deflation keep postponing their purchasing decisions in the hope that prices will decrease further.

Incorrect : Out Of Scope

The author does mention the decision to postpone spending and he/she also mentions job cuts due to deflation. However, the author does not relate the two.

C. Large-scale spending by the government is one of the most effective ways to tackle deflation.

Incorrect : Out Of Scope

Large-scale is mentioned as one of the ways to prevent and tackle deflation; however, there is no given information on its being one of the most effective ways.

D. The financial market crash of 2008 was caused by deflation in the economy.

Incorrect : Out Of Scope

The author talks about the crash with reference to the measures undertaken by the government to tackle deflation in the aftermath of the crash. It does not state that the crash itself was caused by deflation.

E. The effect of sustained price rise is considered less harmful than that of sustained price fall.

Correct

This information is given to us in the first paragraph. The author states that:

Deflation, in fact, is considered to be a bigger evil than inflation,

Deflation = sustained price fall

Inflation = sustained price rise

narayandutta · Answer

Can Anyone explain ques 1 . I got answer as E.

Prateek176 · Answer

narayandutta

Warn would be too strong a word to describe the last paragraph. The author is simply providing an extra piece of information which is the flip side of what he provided in the previous para. He is doing that to prevent people from generalizing fall in prices as bad

JS1290 · Answer

Can someone please explain why option D is incorrect for Q1?

Tamao411284 · Answer

1.Which of the following describes the function of the final paragraph?
A. To raise a consideration to add to the understanding of a phenomenon
B.To differentiate between different kinds of situations that are mistaken for one another
C.To introduce a discussion on an aspect related to a phenomenon explained earlier in detail 
D.To give information that is not conflicting with the definition of a phenomenon discussed earlier
E.To warn against a common generalization

Final paragraph starts with a contrast marker(by author)"However, not all dips in prices are bad.." and then it explains the a particular situation and fosters the same (..Such a situation...) and ends with deflation is considered a red flag..(which modifier modifies the previous noun deflation).
Now lets evaluate..
1.(raise a consideration ie by showing the contrast..that this should not be bad after all from the previous paragraph..) OK..lets keep it
2.To differentiate...(OK dif btw general accepted position about dips. ) but after reading further..situations that are mistaken for one another(nothing is mistaken..author has made his judgement.) OUT
3. introduce a discussion(no discussion is introduced) OUT.
4.To give information that is not conflicting...(when the starting marker is However contrast is made)..OUT
5.To Warn.. he is just describing an exception (situation ).OUT

AmarRajput · Answer

In my explanation i will use POE to solve

1.Which of the following describes the function of the final paragraph?
A. To raise a consideration to add to the understanding of a phenomenon   Correct  
B.To differentiate between different kinds of situations that are mistaken for one another   Nothing mistaken  
C.To introduce a discussion on an aspect related to a phenomenon explained earlier in detail   not introducing anything  
D.To give information that is not conflicting with the definition of a phenomenon discussed earlier  too broad  
E.To warn against a common generalization  no warning

2. Which of the following statements would the author most likely agree with?
A.Although inflation can be beneficial for the economy deflation cannot be.   nothing about this talked about  
B.The decision to buy a product later in the hope of benefitting from a further price reduction is part of the cyclical chain of events that breeds deflation.  correct refer para 1  
C.Deflation has little in common with dips in prices that are not substantially caused by decreasing demand.  out of scope  
D.Production cuts undertaken due to accumulated inventory help producers deal with an excess supply, leading to a momentary increase in prices.   opposite  
E.Whenever supply exceeds current demand, deflation occurs.  close , but not everytime so eliminated

3.As per the passage, which of the following would most likely be considered a dip in prices beneficial to both the consumer and the producer?
A.Because of a breakthrough in diamond mining, the price of the diamond dips, with it becoming affordable for more people but losing its unique selling appeal as a luxury item.  something related with new technology and increased competition needed, but not there so eliminated  
B.Because of the cancellation of an order, the producer reduces the price of the goods in stock considerably and sells them to another buyer.   again new technology and increased competition not there  
C.Because of a change in policy, producers can now procure raw materials for producing garments at cheaper prices from nearby countries and hence save on their cost of production.  same as 1 and 2  
D.Because of an increasing competition from cheaply produced and imported goods, the local producers reduce the prices of their goods to sell off their existing stock at initiate production cuts.  not beneficial for both producer and consumer  
E.Because of a new technology, the manufacturers of personal computers are able to reduce their cost of production and pass these savings to the consumers as well by lowering the prices.  yes correct new technology and benefit for both producer and consumer

4.Which of the following is mentioned in the passage?
A.Most people have a natural dislike for deflation.  natural dislike for inflation not deflation  
B.Those people who lose their jobs in deflation keep postponing their purchasing decisions in the hope that prices will decrease further.  no job loss  
C.Large-scale spending by the government is one of the most effective ways to tackle deflation.  not ONE of the most  
D.The financial market crash of 2008 was caused by deflation in the economy.  nothing mentioned  
E.The effect of sustained price rise is considered less harmful than that of sustained price fall. correct

__Poisonivy__ · Answer

I don't understand why in last question the correct option is not D? Because as far as what I understood from reading the passage that Deflation = Price fall is absolutely correct but the converse that the price fall = deflation is not always correct, the last para is all about that, it says that a kind of price fall that occurs due to Tech advancements ..bla..bla... is not considered a deflation. So if option E would have said "The effect of inflation is considered less harmful than that of deflation." would have made much more sense. Please correct me if I m wrong.

Irrespective of the general state of the economy, paying less for the

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Irrespective of the general state of the economy, paying less for the

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