Official Solution:
Ten years ago and again five years ago, there were extended periods when the Bangladesh’s currency, the taka, was weak: its value was unusually low relative to the world’s most stable currencies. Both times a weak taka made Bangladesh’s manufactured products a bargain on world markets, and Bangladesh’s exports were up substantially. Now some politicians are saying that, in order to cause another similarly sized increase in exports, the government should allow the taka to become weak again.
Which of the following, if true, provides the government with the strongest grounds to doubt that the politicians’ recommendation, if followed, will achieve its aim?
A. Several of the politicians now recommending that the taka be allowed to become weak made that same recommendation before each of the last two periods of currency weakness.
B. After several decades of operating well below peak capacity, Bangladesh’s manufacturing sector is now operating at near-peak levels.
C. The economy of a country experiencing a rise in exports will become healthier only if the country’s currency is strong or the rise in exports is significant.
D. Those countries whose manufactured products compete with Bangladesh’s on the world market all currently have stable currencies.
E. A sharp improvement in the efficiency of Bangladesh’s manufacturing plants would make Bangladesh’s products a bargain on world markets even without any weakening of the taka relative to other currencies.
(A) Is irrelevant (politicians' stances / opinions don't have a direct bearing on any of the economic indicators in the argument).
(B) CORRECT. Since the manufacturing sector is already at peak, even if a demand for Bangladeshi products develops outside Bangladesh because of weak currency (or whatsoever reason), the country would not be able to meet that export demand - it has no capacity to produce more. Therefore it would not be possible to achieve “another similarly sized increase in exports.” To elaborate further with an example:
Let us say Bangladesh is currently manufacturing 1000 units of items - some of which (say 700 units) are used within Bangladesh and some (say 300 units) are exported (the distribution does not matter). Bangladesh CANNOT produce more than 1000 units. Now suppose the Bangladesh currency is weakened. Foreign countries will now want to buy 600 units (instead of 300 they were buying previously). However Bangladesh does not have the capacity to produce this excess demand of 600-300 = 300 units. Bangladesh is now required to produce 1300 units (700 for domestic use and 600 for export), but it has capacity to produce only 1000 units. Therefore weakening the currency does not help boost exports (it boosted export demand, but could not boost export supply because of manufacturing constraints).
(C) We cannot evaluate the effects of (c) until we know whether the purported rise in exports will be 'significant' (circular reasoning - we can't base advocacy for/against a policy on its uncertain results)
(D) Is irrelevant, as there's no material difference between this situation and the situation during the first two export booms: notice that, in those cases, the reference currencies were all stable as well
(E) This option is irrelevant: the question asks us to undermine the politician's suggestion, not to suggest an alternative. The conclusion is that weakening taka will boost exports. There are two parts:
weakening taka and
boosting exports. The weakening statement must point out why weakening taka will NOT boost exports. Option E does not address the
weakening taka part.
Answer: B
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