Events & Promotions
|
|
GMAT Club Daily Prep
Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.
Customized
for You
Track
Your Progress
Practice
Pays
Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.
Nov 2007:30 AM PST
-08:30 AM PST
Learn what truly sets the UC Riverside MBA apart and how it helps in your professional growth
Nov 2001:30 PM EST
-02:30 PM IST
Learn how Kamakshi achieved a GMAT 675 with an impressive 96th %ile in Data Insights. Discover the unique methods and exam strategies that helped her excel in DI along with other sections for a balanced and high score.
Nov 1912:30 PM EST
-01:30 PM EST
Learn how Keshav, a Chartered Accountant, scored an impressive 705 on GMAT in just 30 days with GMATWhiz's expert guidance. In this video, he shares preparation tips and strategies that worked for him, including the mock, time management, and more
Nov 2211:00 AM IST
-01:00 PM IST
Do RC/MSR passages scare you? e-GMAT is conducting a masterclass to help you learn – Learn effective reading strategies Tackle difficult RC & MSR with confidence Excel in timed test environment- Nov 23
11:00 AM IST
-01:00 PM IST
Attend this free GMAT Algebra Webinar and learn how to master the most challenging Inequalities and Absolute Value problems with ease. 
Nov 2407:00 PM PST
-08:00 PM PST
Full-length FE mock with insightful analytics, weakness diagnosis, and video explanations!
Nov 2510:00 AM EST
-11:00 AM EST
Prefer video-based learning? The Target Test Prep OnDemand course is a one-of-a-kind video masterclass featuring 400 hours of lecture-style teaching by Scott Woodbury-Stewart, founder of Target Test Prep and one of the most accomplished GMAT instructors.
souvik101990
Expert
Alum
Joined: 19 Mar 2012
Last visit: 11 Nov 2025
Posts: 4,321
Own Kudos:
Given Kudos: 2,326
Location: United States (WA)
Concentration: Leadership, General Management
Schools: Ross '20 (M)
GMAT 1: 760 Q50 V42
GMAT 2: 740 Q49 V42 (Online)
GMAT 3: 760 Q50 V42 (Online)
GPA: 3.8
WE:Marketing (Non-Profit and Government)
Products:
Expert reply
26 Apr 2018, 03:03
Kudos
Bookmarks
E
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
35%
(medium)
Question Stats:
78% (01:53) correct
22%
(01:04)
wrong
based on 18
sessions
History
Date
Time
Result
Not Attempted Yet
The causal relationship between economic growth and financial market development has been the subject of intensive theoretical and empirical studies. The question is whether financial market development produces economic growth or the arrow of causation points in the other direction.
The recent revival of interest in the link between financial development and growth stems mainly from the insights and techniques of internally originated growth models, which have shown that there can be self-sustaining growth without externally originated technical progress and that the growth rate can be related to preferences, technology, income distribution and institutional arrangements. This provides the theoretical underpinning that early contributors lacked: financial intermediation can be shown to have not only level effects but also growth effects.
Pagano suggests three ways in which, under the basic internally fueled growth model, the development of the financial sector might affect economic growth. First, it can increase the productivity of investments. Second, an efficient financial sector reduces transaction costs and thus increases the share of savings channeled into productive investments. (An efficient financial sector improves the liquidity of investments.) Third, financial sector development can either promote or reduce savings.
According to the passage, internally originated growth models have led to the belief that technology
A. plays a crucial role in financial intermediation
B. leads to economic growth by affecting income distribution
C. is an externally originating process in economic growth
D. did not have a leveling effect
E. can be a factor in self-sustaining economic growth
The recent revival of interest in the link between financial development and growth stems mainly from the insights and techniques of internally originated growth models, which have shown that there can be self-sustaining growth without externally originated technical progress and that the growth rate can be related to preferences, technology, income distribution and institutional arrangements. This provides the theoretical underpinning that early contributors lacked: financial intermediation can be shown to have not only level effects but also growth effects.
Pagano suggests three ways in which, under the basic internally fueled growth model, the development of the financial sector might affect economic growth. First, it can increase the productivity of investments. Second, an efficient financial sector reduces transaction costs and thus increases the share of savings channeled into productive investments. (An efficient financial sector improves the liquidity of investments.) Third, financial sector development can either promote or reduce savings.
According to the passage, internally originated growth models have led to the belief that technology
A. plays a crucial role in financial intermediation
B. leads to economic growth by affecting income distribution
C. is an externally originating process in economic growth
D. did not have a leveling effect
E. can be a factor in self-sustaining economic growth
souvik101990
Expert
Alum
Joined: 19 Mar 2012
Last visit: 11 Nov 2025
Posts: 4,321
Own Kudos:
Given Kudos: 2,326
Location: United States (WA)
Concentration: Leadership, General Management
Schools: Ross '20 (M)
GMAT 1: 760 Q50 V42
GMAT 2: 740 Q49 V42 (Online)
GMAT 3: 760 Q50 V42 (Online)
GPA: 3.8
WE:Marketing (Non-Profit and Government)
Products:
Expert reply
26 Apr 2018, 03:03
Kudos
Bookmarks
Official Solution:
The causal relationship between economic growth and financial market development has been the subject of intensive theoretical and empirical studies. The question is whether financial market development produces economic growth or the arrow of causation points in the other direction.
The recent revival of interest in the link between financial development and growth stems mainly from the insights and techniques of internally originated growth models, which have shown that there can be self-sustaining growth without externally originated technical progress and that the growth rate can be related to preferences, technology, income distribution and institutional arrangements. This provides the theoretical underpinning that early contributors lacked: financial intermediation can be shown to have not only level effects but also growth effects.
Pagano suggests three ways in which, under the basic internally fueled growth model, the development of the financial sector might affect economic growth. First, it can increase the productivity of investments. Second, an efficient financial sector reduces transaction costs and thus increases the share of savings channeled into productive investments. (An efficient financial sector improves the liquidity of investments.) Third, financial sector development can either promote or reduce savings.
According to the passage, internally originated growth models have led to the belief that technology
A. plays a crucial role in financial intermediation
B. leads to economic growth by affecting income distribution
C. is an externally originating process in economic growth
D. did not have a leveling effect
E. can be a factor in self-sustaining economic growth
This is a detail question. We need to find the option that is stated about internally originated growth models. Internally originated growth models are discussed in the second paragraph. These models led to the idea that "there can be self-sustaining growth . . . and that the growth rate can be related to preferences, technology, income distribution and institutional arrangements."
(A) There is no mention of technology having a crucial role in financial intermediation, though it might have some part.
(B) Technology and income distribution are part of the same list of factors; the passage doesn't say that one leads to the other.
(C) Actually, the passage states that there can be growth "without externally originated technical progress." Technology is then listed to support that point.
(D) The passage actually makes clear that technology and other factors can have not only leveling effect.
(E) This is the correct choice. According to the passage "The (self-sustaining) growth rate can be related to . . . technology. . ."
Answer: E
The causal relationship between economic growth and financial market development has been the subject of intensive theoretical and empirical studies. The question is whether financial market development produces economic growth or the arrow of causation points in the other direction.
The recent revival of interest in the link between financial development and growth stems mainly from the insights and techniques of internally originated growth models, which have shown that there can be self-sustaining growth without externally originated technical progress and that the growth rate can be related to preferences, technology, income distribution and institutional arrangements. This provides the theoretical underpinning that early contributors lacked: financial intermediation can be shown to have not only level effects but also growth effects.
Pagano suggests three ways in which, under the basic internally fueled growth model, the development of the financial sector might affect economic growth. First, it can increase the productivity of investments. Second, an efficient financial sector reduces transaction costs and thus increases the share of savings channeled into productive investments. (An efficient financial sector improves the liquidity of investments.) Third, financial sector development can either promote or reduce savings.
According to the passage, internally originated growth models have led to the belief that technology
A. plays a crucial role in financial intermediation
B. leads to economic growth by affecting income distribution
C. is an externally originating process in economic growth
D. did not have a leveling effect
E. can be a factor in self-sustaining economic growth
This is a detail question. We need to find the option that is stated about internally originated growth models. Internally originated growth models are discussed in the second paragraph. These models led to the idea that "there can be self-sustaining growth . . . and that the growth rate can be related to preferences, technology, income distribution and institutional arrangements."
(A) There is no mention of technology having a crucial role in financial intermediation, though it might have some part.
(B) Technology and income distribution are part of the same list of factors; the passage doesn't say that one leads to the other.
(C) Actually, the passage states that there can be growth "without externally originated technical progress." Technology is then listed to support that point.
(D) The passage actually makes clear that technology and other factors can have not only leveling effect.
(E) This is the correct choice. According to the passage "The (self-sustaining) growth rate can be related to . . . technology. . ."
Answer: E
14 Nov 2021, 11:15
Kudos
Bookmarks
I think this is a poor-quality question and I agree with explanation. C isn't strictly wrong, so this is one of those "which is most correct" problems, and I'm not 100% convinced one answer is better than the other.
