V07-19

Official Solution:


Ten years ago, and again five years ago, there were periods, each lasting less than a year, when Bangladesh's currency, the taka, was weak: its value was unusually low relative to the world’s most stable currencies. During these times, a weak taka not only made Bangladesh’s manufactured products a bargain on world markets but also spurred an increase in manufacturing output as local companies ramped up production to meet the surge in export demand. Bangladesh’s exports and manufacturing sector experienced substantial growth. Now, some politicians are suggesting that, in order to stimulate another similar short-term increase in manufacturing through boosted 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 who now recommend allowing the taka to weaken also made the same recommendation before the last two periods of currency weakness.
B. After decades of operating well below peak capacity, Bangladesh’s manufacturing sector is now operating near its peak.
C. A country’s economy will only become healthier from a rise in exports if the currency is strong or the export increase is substantial.
D. All countries whose manufactured products compete with Bangladesh on the world market currently have stable currencies.
E. Significant improvements in the efficiency of Bangladesh’s manufacturing plants could make the products more competitive internationally without weakening the taka.


(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 any other reason), the country would not be able to meet that export demand - it has no capacity to produce more and there would not be an increase in manufacturing, at least not without long-term investments into new factories. Therefore it would not be possible to achieve “another similarly sized increase in exports.”

(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