Most people associate bartering with poor or undeveloped societies

Question

Most people associate bartering with poor or undeveloped societies, or with small, infrequent, and informal exchanges made within economies that use traditional currency. But bartering has also played a role when once robust economies have faltered. During the Great Depression, for example, farmers directly traded crops and other services with one another, since what little money the farmers had was of negligible value. And after the fall of communism, inflation was so high that individuals and businesses in the former Soviet Union found it safer to trade goods and services directly. (Traditional currency was still used, but the street value of the currency stretched to fit the need of the purchased item: rubles used to buy staples such as food were considered to be of greater value than rubles used to buy luxury items such as fur coats.)

We are now seeing a growing movement of individuals and businesses that prefer to use bartering in a wide variety of transactions, including multi-million-dollar purchases. In New Zealand, a house and surrounding property, valued at 5.1 million United States dollars, was recently sold for 1.7 Barterdollars (BDs), a form of credit used by about 9,000 individuals and 50 businesses in four countries. Though the deal did not involve legal tender, it was not illegal, and a contract secured the sale through business property owned by the buyer. In this case, the seller will use most of the BDs to obtain plumbing and electrical work — for both office space and his new home — from the buyer, who owns a business that provides these services. The seller is under no obligation to use the BDs this way, however, and can spend them elsewhere or simply save them as credits for later use. There is, however, little incentive to save, because, as with most barter systems, the currency does not generate interest. This also applies to loans: several bartering organizations have set up facilities that lend currency in exchange for an agreement that stipulates that the borrower will "pay" it back with products and services over a set period of time, interest-free, though a transaction fee is charged.

Community-based non-profit bartering is generally not subject to taxation, but virtually all governments consider bartering by businesses identical to cash transactions, and taxes need to be paid accordingly. However, the nature of these transactions has made them harder for governments to track, especially as bartering on the Internet has become more popular. Determining the value of the terms of a barter can also be problematic. If A designs a website for B in exchange for barter credits, A should pay taxes on the value of the credits received, while B can consider the credits as a business expense. For tax purposes, A has an incentive to underestimate the value of the transaction and B has an incentive to overestimate. To minimize this sort of problem, some governments have set a standard, so that 1 credit in a non-governmental but nationally recognized barter system corresponds to a certain valuation of the official currency. 
  1 
 1. According to the author, which of the following is a problem for governments?

(A) Non-profit organizations that serve communities are not subject to taxation on barter transactions.
(B) Governments of different countries do not always agree on which bartering systems to recognize.
(C) A separate set of tax laws apply to financial transactions made on the Internet.
(D) Bartering is inherently different from conventional financial transactions.
(E) An individual who sells a service in exchange for bartering credits is likely to judge the worth of the service to be greater than would an individual who sells the same service in exchange for traditional currency.

2 
   Correct Answer: A

The parenthetical note in the first paragraph makes clear that traditional currency (the ruble) was used at the same time that people were bartering.

The currency "stretched" to fit the item being sold, making the currency unusually flexible.

Therefore, A is the correct answer.

B is incorrect because the problem of determining the value of goods is discussed in the third paragraph, long after any mention of the former Soviet Union.

While farmers were mentioned in the first paragraph, they are discussed in relation to the Depression, not the former Soviet Union, making C wrong.

D is incorrect because while the first paragraph does mention the use of traditional currency for the purchase of staple goods and luxury items, it never says that people bartered for these things.

The passage never states that bartering was taxed in the former Soviet Union, which is only mentioned in the first paragraph; thus E is also wrong. 
 2. According to the author of the passage, bartering in the former Soviet Union was

(A) used along with an unusually flexible currency
(B) problematic because of the difficulty of determining the value of goods
(C) mainly used by farmers who directly traded with each other
(D) used for the purchase of both staple goods and luxury items
(E) subject to taxation to the same degree as were traditional transactions

3 
   Correct Answer: C

The second paragraph states: "The seller is under no obligation to use the BDs this way, however, and can spend them elsewhere or simply save them as credits for later use." Thus C is the correct response.

Answer A is incorrect because according to the second paragraph, "There is, however, little incentive to save, because, as with most barter systems, the currency does not generate interest."

Choice B is wrong because the opening sentence of the second paragraph states that "virtually all governments consider bartering by businesses identical to cash transactions, and taxes need to be paid accordingly." There is no indication that barter credits - BDs in this case - are not taxed until they are used.

For answer D, nowhere in the passage does it state that BDs can be exchanged or redeemed for traditional currency in some countries.

And E is contrary to the correct answer, which is supported by the statement in the second paragraph, which makes it clear that BDs can be spent "elsewhere," and not necessarily with the individual or business from whom the BDs were received. 
 3. According to the author, a seller who receives Barterdollars (BDs)

(A) can receive interest on the amount received through exchange facilities that accept BDs
(B) does not owe taxes on the credits received until they are used for a purchase of goods or services
(C) can apply the credits received to an unrelated transaction
(D) can, in some countries, redeem the BDs for traditional currency
(E) is obligated to redeem the Barterdollars through the purchase of goods or services offered by the buyer from whom the BDs were received

4 
   Correct Answer: B

The first paragraph of the passage discusses traditional bartering, and this is contrasted with the remainder of the passage, which discusses modern-day bartering. The ramifications of modern bartering, especially interest and taxation issues, are described in the second and third paragraphs. Thus B is the correct response.

Answer A is incorrect because the author does not criticize governments for how they tax bartering.

Because the author does not try to prove to the reader that bartering is just as legitimate as other types of transactions, answer C is wrong.

D is incorrect for the author never categorizes any of the issues discussed as being either "for" or "against" the use of bartering.

While the author might feel that bartering will never become as popular as other transactions, or that bartering might become as popular without first needing to resolve the tax issues, we cannot say for sure from this passage alone, making E also incorrect. 
 4. The primary purpose of the passage is to

(A) take issue with the way in which most governments today handle the problems involved with taxing barter transactions
(B) discuss recent, non-traditional ways in which bartering is used, and to present some of the ramifications of this use
(C) persuade the reader that bartering transactions are as legitimate as those that involve traditional currency
(D) provide some of the reasons for and against the widespread use of bartering
(E) show that bartering will not become as popular as other types of financial transactions until the tax issues associated with bartering are resolved

shubham2312 · Accepted Answer

Hi as per the passage  If A designs a website for B in exchange for barter credits, A should pay taxes on the value of the credits received, while B can consider the credits as a business expense. For tax purposes, A has an incentive to underestimate the value of the transaction and B has an incentive to overestimate.

the person who is selling would be underestimating the price and the person who is buying will overestimate the price very much like we do in our income tax, and the option D says just opposite.

JS1290 · Answer

could someone please explain q1? I am not sure why the OA is D instead of E

Skywalker18 · Answer

All correct in 8 mins 20 seconds, including 4 mins 30 seconds to read

Para 1- what most people think of bartering, bartering has played a role even when robust economies have faltered
Para 2- Barterdollars- how it works?
Para 3- taxation issues

1. According to the author, which of the following is a problem for governments?
(D) Bartering is inherently different from conventional financial transactions.

However, the nature of these transactions has made them harder for governments to track, especially as bartering on the Internet has become more popular. Determining the value of the terms of a barter can also be problematic

2. According to the author of the passage, bartering in the former Soviet Union was
(A) used along with an unusually flexible currency
And after the fall of communism, inflation was so high that individuals and businesses in the former Soviet Union found it safer to trade goods and services directly. (Traditional currency was still used, but the street value of the currency stretched to fit the need of the purchased item: rubles used to buy staples such as food were considered to be of greater value than rubles used to buy luxury items such as fur coats.)

3. According to the author, a seller who receives Barterdollars (BDs)
(C) can apply the credits received to an unrelated transaction

The seller is under no obligation to use the BDs this way, however, and can spend them elsewhere or simply save them as credits for later use.

4. The primary purpose of the passage is to
(B) discuss recent, non-traditional ways in which bartering is used, and to present some of the ramifications of this use

mangamma · Answer

3rd question official answer

Correct Answer: C

The second paragraph states: "The seller is under no obligation to use the BDs this way, however, and can spend them elsewhere or simply save them as credits for later use." Thus C is the correct response. Answer A is incorrect because according to the second paragraph, "There is, however, little incentive to save, because, as with most barter systems, the currency does not generate interest." Choice B is wrong because the opening sentence of the second paragraph states that "virtually all governments consider bartering by businesses identical to cash transactions, and taxes need to be paid accordingly." There is no indication that barter credits - BDs in this case - are not taxed until they are used. For answer D, nowhere in the passage does it state that BDs can be exchanged or redeemed for traditional currency in some countries. And E is contrary to the correct answer, which is supported by the statement in the second paragraph, which makes it clear that BDs can be spent "elsewhere," and not necessarily with the individual or business from whom the BDs were received.

mangamma · Answer

2nd question official explanation 
Correct Answer: A

The parenthetical note in the first paragraph makes clear that traditional currency (the ruble) was used at the same time that people were bartering. The currency "stretched" to fit the item being sold, making the currency unusually flexible. Therefore, A is the correct answer. B is incorrect because the problem of determining the value of goods is discussed in the third paragraph, long after any mention of the former Soviet Union. While farmers were mentioned in the first paragraph, they are discussed in relation to the Depression, not the former Soviet Union, making C wrong. D is incorrect because while the first paragraph does mention the use of traditional currency for the purchase of staple goods and luxury items, it never says that people bartered for these things. The passage never states that bartering was taxed in the former Soviet Union, which is only mentioned in the first paragraph; thus E is also wrong.

mangamma · Answer

4th question official explanation

Correct Answer: B

The first paragraph of the passage discusses traditional bartering, and this is contrasted with the remainder of the passage, which discusses modern-day bartering. The ramifications of modern bartering, especially interest and taxation issues, are described in the second and third paragraphs. Thus B is the correct response. Answer A is incorrect because the author does not criticize governments for how they tax bartering. Because the author does not try to prove to the reader that bartering is just as legitimate as other types of transactions, answer C is wrong. D is incorrect for the author never categorizes any of the issues discussed as being either "for" or "against" the use of bartering. While the author might feel that bartering will never become as popular as other transactions, or that bartering might become as popular without first needing to resolve the tax issues, we cannot say for sure from this passage alone, making E also incorrect.

ArmaanBajaj · Answer

Can someone properly explain Q1 & Q4 (there's no mention of traditional ways in the passage)

guddo · Answer

1. According to the author, which of the following is a problem for governments?

The passage says governments generally treat business barter transactions like cash transactions for tax purposes. However,  barter transactions differ in ways that make them harder to track and value accurately .  That practical difference creates a problem for governments.

(A) Non-profit organizations that serve communities are not subject to taxation on barter transactions.

Incorrect. The passage presents this as a rule, not as a problem governments face.

(B) Governments of different countries do not always agree on which bartering systems to recognize.

Incorrect. The passage does not mention disagreement among governments.

(C) A separate set of tax laws apply to financial transactions made on the Internet.

Incorrect. Internet bartering is harder to track, but the passage does not say separate tax laws apply to it.

(D) Bartering is inherently different from conventional financial transactions.

Correct.   Governments try to treat business barter transactions like ordinary cash transactions, but barter is harder to track and its value can be difficult to determine. Thus, its different nature creates practical taxation problems for governments.

(E) An individual who sells a service in exchange for bartering credits is likely to judge the worth of the service to be greater than would an individual who sells the same service in exchange for traditional currency.

Incorrect. The passage says the seller has an incentive to  underestimate  the value of the barter transaction for tax purposes, not to value it more highly.

Answer: (D)

guddo · Answer

4. The primary purpose of the passage is to

The passage first explains that bartering has existed in various economic situations, then focuses on  modern forms of bartering , including large transactions, barter credits, and loans. It also discusses  practical consequences , especially taxation, valuation, and government tracking problems.

(A) take issue with the way in which most governments today handle the problems involved with taxing barter transactions

Incorrect. Taxation is discussed only in the final paragraph, and the author does not mainly criticize governments' approach.

(B) discuss recent, non-traditional ways in which bartering is used, and to present some of the ramifications of this use

Correct.   The passage describes modern uses of bartering, such as large purchases, barter credits, and loans, and then discusses consequences such as taxation and valuation difficulties.

(C) persuade the reader that bartering transactions are as legitimate as those that involve traditional currency

Incorrect. The passage notes that one barter transaction was legal, but it does not argue broadly that barter is as legitimate as traditional currency.

(D) provide some of the reasons for and against the widespread use of bartering

Incorrect. The passage discusses how bartering works and some consequences of its use, rather than presenting a balanced case for and against widespread adoption.

(E) show that bartering will not become as popular as other types of financial transactions until the tax issues associated with bartering are resolved

Incorrect. The passage makes no prediction that tax issues are preventing bartering from becoming more popular.

Answer: (B)

egmat · Answer

Hi ArmaanBajaj,

Let me take your two questions separately, and I'll start with the phrase that's bugging you in Q4.

Q4 - where is "non-traditional bartering"?

The passage never uses those exact words, but that's the whole structure of the piece. Watch the pivot:

-  Paragraph 1  = the  traditional  picture of bartering - poor societies, the Great Depression, the former Soviet Union.
-  Paragraph 2 onward  = "We are now seeing a  growing movement ... including  multi-million-dollar purchases ." A  5.1 -million-dollar house sold for Barterdollars, interest-free barter loans, bartering on the Internet.

That modern movement  is  the "non-traditional" bartering - bartering used in brand-new ways it wasn't associated with before. So (B) has two parts, and both are in the text: it  discusses these recent, non-traditional uses , and then  presents the ramifications  (taxation, tracking difficulty, valuation problems in paragraph  3 ). No other choice covers the whole passage: (A) and (E) are too narrow/critical, (C) isn't the author's aim, and (D) implies a for/against debate the author never sets up.

Q1 - why D, not E?

The stem asks for  a problem for governments . Find where the author names problems - paragraph  3 :

"the nature of these transactions has made them  harder for governments to track ... Determining the value of the terms of a barter can also be  problematic ."

Why do these problems exist? Because barter doesn't behave like cash - that's exactly what (D) says:  bartering is inherently different from conventional financial transactions.  It's the root cause the whole paragraph rests on.

(E) is the trap. Re-read the line carefully: for tax purposes the seller has an incentive to  underestimate  the value, not to judge it greater. (E) says the opposite - that the seller judges the service  greater  in worth. That reverses the text, so it can't be your answer.

Hope that clears both up - the key for Q4 is reading "non-traditional" as the modern movement, not as a missing phrase.

Answer: D; B

Most people associate bartering with poor or undeveloped societies

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GMAT Reading Comprehension (RC) Questions

Most people associate bartering with poor or undeveloped societies

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