One of the cornerstones of economic reform in the formerly Communist

Question

(The following passage was written in 1991.)

One of the cornerstones of economic reform in the formerly Communist states is privatization, which can be approached either gradually or rapidly. Under the gradual approach, a state bureau would decide if and when an enterprise is prepared for privatization and which form is most suitable for it. However, gradual privatization would only prolong the core problems of inefficiency and misallocation of both labor and capital. Under one of two approaches to rapid privatization, shares of an enterprise would be distributed among the enterprise’s employees so that the employees would become the owners of the enterprise. This socialist reform approach discriminates in favor of workers who happen to be employed by a modern and efficient enterprise as well as by placing workers’ property at great risk by requiring them to invest their property in the same enterprise in which they are employed rather than permitting them to diversify their investments.

A better approach involves distribution of shares in enterprises, free of charge, among all the people by means of vouchers—a kind of investment money. Some critics charge that voucher holders would not be interested in how their enterprises are managed, as may be true of small corporate shareholders in capitalist countries who pay little attention to their investments until the corporation’s profits fail to meet expectations, at which time these shareholders rush to sell their securities. While the resulting   fall in stock prices   can cause serious problems for a corporation, it is this very pressure that drives private firms toward efficiency and profitability. Other detractors predict that most  people will sell their vouchers to foreign capitalists . These skeptics ignore the capacity of individuals to consider their own future—that is, to compare the future flow of income secured by a voucher to the benefits of immediate consumption. Even if an individual should decide to sell, the aim of voucher privatization is not to secure equality of property but rather equality of opportunity.    1 
 1. Which of the following is NOT mentioned in the passage as a possible adverse consequence of rapid privatization?

(A) Undue prolongation of inefficiency and misallocation
(B) Loss of ownership in domestic private enterprises to foreign concerns
(C) Financial devastation for employees of private enterprises
(D) Inequitable distribution of wealth among employees of various enterprises
(E) Instability in stock prices

2 
 2. Which of the following would the author probably agree is the LEAST desirable outcome of economic reform in formerly Communist countries?

(A) Effective allocation of labor
(B) Equitable distribution of property among citizens
(C) Financial security of citizens
(D) Equal opportunity for financial success among citizens
(E) Financial security of private enterprises

3 
 3. In responding to those “skeptics” who claim that people will sell their vouchers to foreign capitalists ( Highlighted ), the author implies that

(A) foreign capitalists will not be willing to pay a fair price for the vouchers.
(B) the future flow of income is likely in many cases to exceed the present exchange value of a voucher.
(C) foreign investment in a nation’s enterprises may adversely affect currency exchange rates.
(D) although the skeptics are correct, their point is irrelevant in evaluating the merits of voucher privatization.
(E) foreign capitalists are less interested in the success of voucher privatization than in making a profit.

4 
 4. Which of the following is LEAST accurate in characterizing the author’s method of argumentation in discussing the significance of falling stock prices ( Text in Red )?

(A) Describing a paradox that supports the author’s position
(B) Asserting that one drawback of an approach is outweighed by countervailing considerations
(C) Rebutting an opposing position by suggesting an alternative explanation
(D) Discrediting an opposing argument by questioning its relevance
(E) Characterizing an argument against a course of action instead as an argument in its favor

Source: Master GMAT

pabpinor · Accepted Answer

1. Which of the following is NOT mentioned in the passage as a possible adverse consequence of rapid privatization?

(A) Undue prolongation of inefficiency and misallocation   Right.   This is mentioned a ts a consequence of the rapid privatization but for the gradual. 
(B) Loss of ownership in domestic private enterprises to foreign concerns  Wrong.   This is mentioned about the rapid privatization by giving vouchers that the citizens will sell then to foreing investors when the economy does not perform well. 
(C) Financial devastation for employees of private enterprises  Wrong.   This is mentioned when rapid privatization is carried by giving the shares to the own employees.  
(D) Inequitable distribution of wealth among employees of various enterprises  Wrong.    This is like the previous one, relative to rapid privatization by giving the employees the control, creating discrepancies because of the type of company. 
(E) Instability in stock prices  Wrong.    This could be generated when the economy does not perform well if all the citizens own all the companies.

2. Which of the following would the author probably agree is the LEAST desirable outcome of economic reform in formerly Communist countries?

(A) Effective allocation of labor  Wrong.    This appears in the first sentences, is really important for the author to secure labor.  
(B) Equitable distribution of property among citizens  Wrong.    The author specifically proposes an equitable distribution by distributing common shares to all citizens instead of shares of their own employers. 
(C) Financial security of citizens  Wrong.   As in the previous one, the author proposed the common shares method to reduce the risk passed to citizens.  
(D) Equal opportunity for financial success among citizens  Wrong.    Same than the previous one, the second way of rapid privatization provides more equality. 
 (E) Financial security of private enterprises    Right.   This is the least desirable as the author prioritizes labor and financial security for the citizens (being a former comunist country private enterprises should come after the citizens).

3. In responding to those “skeptics” who claim that people will sell their vouchers to foreign capitalists (Highlighted), the author implies that

(A) foreign capitalists will not be willing to pay a fair price for the vouchers.  Wrong.    There is no mention of fair price from foreign capitalists, this could be implied but in a further way than B. 
 (B) the future flow of income is likely in many cases to exceed the present exchange value of a voucher.   Right.   The author states that vouchers won't be sold because they are worth more if holded, this is just what it implies. 
(C) foreign investment in a nation’s enterprises may adversely affect currency exchange rates.  Wrong.   There is no sign of exchange rate anywhere, does not fit here. 
(D) although the skeptics are correct, their point is irrelevant in evaluating the merits of voucher privatization.  Wrong.   Cannot be as the merits of the privatization are the main concern of the passage. 
(E) foreign capitalists are less interested in the success of voucher privatization than in making a profit.  Wrong.   Meaningless, for them voucher privatization would be a mean to enter the market, is not related with the skeptics worry (this could be the consequence, not the cause)

4. Which of the following is LEAST accurate in characterizing the author’s method of argumentation in discussing the significance of falling stock prices (Text in Red)?

(A) Describing a paradox that supports the author’s position  Wrong.   This is just a paradox that ends up supporting the author's position. 
(B) Asserting that one drawback of an approach is outweighed by countervailing considerations  Wrong.    This is also what it does, takes a draw back but turns it around.  
 (C) Rebutting an opposing position by suggesting an alternative explanation   Right.   It does not rebut anything, just assumes something and diminishes it, this is the least right. 
(D) Discrediting an opposing argument by questioning its relevance  Wrong.   As mentioned in the previous one, is what it does, discredits by diminishing, also true.  
(E) Characterizing an argument against a course of action instead as an argument in its favor Wrong.  Wrong.    This is has characterizing repeating from the question, almost a copy paste, plain definition of the method.

Regards,
Pablo

auradediligodo · Answer

Hi everyone,
Got 3/4 correct in 10 minutes, including 3:50 minutes to read and 6:10 minutes to answer the questions.

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P1

In paragraph one the author talks about to approaches to privatization adopted by ex communists countries. Gradual privatization is not favored by the author and one approach to rapid privatization also has some problems according to the author.

Purpose:   To present 2 approaches to privatization, considering the drawbacks associated.

P2

In paragraph 2 the author presents the second approach to rapid privatization, that is to give vouchers to employees. Then the author presents 2 critics to such practice and refutes them.

Purpose:   to present and refute 2 critics to the second approach to rapid privatization.

Main point

To discuss 3 approaches to privatization and choose one (giving vouchers to employees) as the best one.

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1. Which of the following is NOT mentioned in the passage as a possible adverse consequence of rapid privatization?

Pre-thinking

Detail question

From P1:  However,  gradual privatization  would only prolong the core problems of
inefficiency and misallocation of both labor and capital.

(A)   Undue prolongation of inefficiency and misallocation
(B) Loss of ownership in domestic private enterprises to foreign concerns  mentioned in P2 
(C) Financial devastation for employees of private enterprises  Mentioned in P1 
(D) Inequitable distribution of wealth among employees of various enterprises  Mentioned in P1 
(E) Instability in stock prices  Mentioned in P2

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2. Which of the following would the author probably agree is the LEAST desirable outcome of economic reform in formerly Communist countries?

Pre-thinking

Inference question

To answer the question we need to understand the goal of such countries.
The aim of such country is to give more opportunities and more possessions to people.

(A) Effective allocation of labor
 From P1:   However, gradual privatization would only prolong the core problems of
inefficiency and misallocation of both labor and capital.

This effect is desired

(B) Equitable distribution of property among citizens
 Of course

(C) Financial security of citizens
 Can be inferred from P1 because if to achieve the goal of privatization shares are given to employees, clearly such approach aims at increasing financial security

(D) Equal opportunity for financial success among citizens
 Can be inferred from the last sentence of the passage.

(E)   Financial security of private enterprises
 Among the options mentioned this is the least desirable.

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3. In responding to those “skeptics” who claim that people will sell their vouchers to foreign capitalists (Highlighted), the author implies that

Pre-thinking

Assumption question

The author assumes that their reasoning is wrong first because they think that such employees will not retain their vouchers and second because such critics address the wrong aspect af the approach.

(A) foreign capitalists will not be willing to pay a fair price for the vouchers.  Out of scope

(B)   the future flow of income is likely in many cases to exceed the present exchange value of a voucher.
  Yes, probably employees will retain their vouchers for some reason and this option gives us that reason.
 
(C) foreign investment in a nation’s enterprises may adversely affect currency exchange rates.
 Out of scope

(D)   although the skeptics are correct,     their point is irrelevant in evaluating the merits of voucher privatization.  
 This is the classic example of an  half correct / half wrong  question. The author never thinks that the critics are correct.

(E) foreign capitalists are less interested in the success of voucher privatization than in making a profit.
 out of scope

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4. Which of the following is LEAST accurate in characterizing the author’s method of argumentation in discussing the significance of falling stock prices (Text in Red)?

Pre-thinking

Let's deconstruct the portion of the passage that is of interest to the question.

Some critics charge that voucher holders would not be interested in how their enterprises are managed, as may be true of small corporate shareholders in capitalist countries who pay little attention to their investments until the corporation’s profits fail to meet expectations, at which time these shareholders rush to sell their securities.

Here we are given the substance of the critic: employees do not care of vouchers and behave like some other people who when stock prices are falling rush to sell their shares.

While the resulting fall in stock prices can cause serious problems for a corporation, it is this very pressure that drives private firms toward efficiency and profitability.

Here the author expresses a contrast by claiming that: "Yes, what you critics say is correct. That happens. But there is more to what you are claiming. This pressure many times drives companies to be profitable and efficient."

So per the author there is some positive aspect associated to what the critics consider negative. Hence the author turns the critic into something positive.

(A) Describing a paradox that supports the author’s position 
 No paradox

(B) Asserting that one drawback of an approach is outweighed by countervailing considerations
 per the author there is no draw back actually

(C)   Rebutting an opposing position by suggesting an alternative explanation
 Correct, the author sees the scenario that critics discuss in a different, more positive light.

(D) Discrediting an opposing argument by questioning its relevance
 The author does not question the relevance.

(E) Characterizing an argument against a course of action instead as an argument in its favor
 out of scope

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It's a great day to be alive!

SiffyB · Answer

1. Which of the following is NOT mentioned in the passage as a possible adverse consequence of rapid privatization?

(A) Undue prolongation of inefficiency and misallocation -  This statement is a consequence of the gradual approach. One of the advantages of rapid privatization is that it expedites the allocation of resources and labour and does not let inefficiency creep into the system.

(B) Loss of ownership in domestic private enterprises to foreign concerns -  This is an adverse effect as mentioned in the last paragraph, third last line.

(C) Financial devastation for employees of private enterprises -  This is a consequence of the first type of rapid privatization mentioned in para 1 where workers' property is at great risk and workers cannot diversify their assets.

(D) Inequitable distribution of wealth among employees of various enterprises -  This is a consequence of the first type of rapid privatization as mentioned in para 1. "This socialist-reform approach discriminates in favor of workers who happen to be employed by a modern and efficient enterprise"

(E) Instability in stock prices -  Mentioned in paragraph 2. See red boldface words.

Correct answer - (A)

2. Which of the following would the author probably agree is the LEAST desirable outcome of economic reform in formerly Communist countries?

(A) Effective allocation of labor -  This is why the economic reform was instituted in the first place - to do away with misallocation of labor.

(B) Equitable distribution of property among citizens -  This is a desirable outcome as the first approach of rapid privatization is considered inferior to the second approach (described in para 2). The downside of the first approach was that it did not ensure equitable distribution of property among citizens.

(C) Financial security of citizens -  As Communists, this was definitely a priority of the country.

(D) Equal opportunity for financial success among citizens -  Desirable as mentioned in the passage.

(E) Financial security of private enterprises -  This is least desirable and is nowhere mentioned in the paragraph.

Correct answer - (E)

3. In responding to those “skeptics” who claim that people will sell their vouchers to foreign capitalists (Highlighted), the author implies that

(A) foreign capitalists will not be willing to pay a fair price for the vouchers. -  Out of scope. Nowhere mentioned

(B) the future flow of income is likely in many cases to exceed the present exchange value of a voucher. -  Out of scope

(C) foreign investment in a nation’s enterprises may adversely affect currency exchange rates. -  Out of scope

(D) although the skeptics are correct, their point is irrelevant in evaluating the merits of voucher privatization. -  Correct choice. Refer to last paragraph - "Even if an individual should decide to sell, the aim of voucher privatization is not to secure equality of property but rather equality of opportunity."

(E) foreign capitalists are less interested in the success of voucher privatization than in making a profit. -  Out of scope

Correct answer (D)

4. Which of the following is LEAST accurate in characterizing the author’s method of argumentation in discussing the significance of falling stock prices (Text in Red)?

(A) Describing a paradox that supports the author’s position -  A paradox is a situation describing two opposite situations which seem to not have a connection initially, but upon further investigation, they do connect. Fall in stock prices and betterment of private firms don't make sense at first, hence, this is a paradox.

(B) Asserting that one drawback of an approach is outweighed by countervailing considerations -  effectively describes the situation at hand ( text in red).

(C) Rebutting an opposing position by suggesting an alternative explanation -  The author rebuttles the point that even though fall in stock prices is a problem, the upside is that it will motivate the private firm and increase efficiency.

(D) Discrediting an opposing argument by questioning its relevance -  This is the correct choice. The author never questions the revelance of any argument.

(E) Characterizing an argument against a course of action instead as an argument in its favor -  This correct described the author's argumentation.

Correct answer (D)

Sajjad1994 · Answer

Official Explanation

4. Which of the following is LEAST accurate in characterizing the author’s method of argumentation in discussing the significance of falling stock prices (Text in Red)?

Explanation

Although the author does respond to what might be one undesired result of voucher privatization—falling stock prices, as well as explain the cause of falling stock prices—the author does not offer an  “alternative”  explanation for this phenomenon, as suggested by  choice (C).

Moreover, the author’s purpose in discussing falling stock prices is not to explain their cause, but rather to acknowledge that what appears to be an undesirable consequence of voucher privatization may actually help bring about a desirable result.

The correct answer is (C).

Sajjad1994 · Answer

Official Explanation

2. Which of the following would the author probably agree is the LEAST desirable outcome of economic reform in formerly Communist countries?

Explanation

In the  third paragraph  the author suggests a willingness to place a private enterprise at risk for the broader purpose of achieving a free-market system. While advocating voucher privatization, the author admits that this approach may very well result in the instability of stock prices; yet, the author seems to view the insecurity caused by market pressures as  “good”  for private enterprises in that it will drive them to efficiency—a sort of sink-or-swim approach.

The correct answer is (E).

Hoozan · Answer