In the 1930's, during the Great Depression, some highly regarded econo

Question

In the 1930's, during the Great Depression, some highly regarded economists espoused the theory of the “mature economy.” In its extreme form the theory held that the United States had been adequately built up—indeed overbuilt—industrially; the problems of production had been solved. The theory assumed that population, if it did not remain static, would increase very slowly. Henceforth, the economy must be concerned with dividing things up correctly and equitably. Early in his administration, President Franklin D. Roosevelt cited the shoe industry as a reflection of this general situation. It was, he said, suffering from overcapacity—which certainly seemed true at the time—and it was hard to imagine anyone adding new Capacity. Roosevelt’s National Recovery Administration and the steps it proposed to alleviate the depression were based on this theory of overcapacity. Some people held to the mature economy theory right through the end of the Second World War in 1945. They argued that once the war—stimulated demand for goods disappeared, depression would set in again and the country would have eight million unemployed; again, productive capacity would outpace consumption. But that did not happen. Instead of remaining static, the population began to shoot upward, and instead of capacity outpacing demand, demand outpaced capacity. The United States began to break all previous records for industrial expansion.

Why did the proponents of this theory prove so wrong? The main reason is that they viewed as a strong tide a phenomenon that economic history will probably regard as hardly more than a nipple. People who throughout the 1930's had necessarily been cautious became bolder. Many began to move to other sections of the country. The average size of the American family increased, as did the number of home Owners—and it is, after all, people who create economic trends.

After the war, business and industry thrived. There were brief interruptions in the upward trend and not all industries benefited equally from the prosperity, but in general there was a period of expansion, high employment, and profitable operations. It is not surprising that during the 1950’s many people, despite warnings, came to regard this state of affairs as normal and to make their economic assumptions on that basis, just as the proponents of the mature economy had considered depression normal. The idea that  expansion and diversification are always desirable  prevailed. Questions were not always raised as to the purpose of the expansion, its justification, or the basis on which it was undertaken. Bur the assumption that expansion is always beneficial—which those questions would have tested—proved faulty. There is, of course, little to fear when such assumptions are abandoned; the danger lies in continuing the pretense that they are still valid.    1 
 1. According to the passage, supporters of the mature economy theory believed that

(A) distribution of goods among people was the major economic problem of their time
(B) the economic problems of their time resulted from investors’ unwillingness to encourage economic expansion
(C) for economic stability to be assured, all industries would have to become equally prosperous
(D) the productive capacity of the United States was precisely balanced with the demands of consumers
(E) since most industries were functioning successfully, their operation should not be disturbed

2 
 2. The explanation in the passage of why the mature economy theory failed is supported with references to which of the following?

I. General fear of recurrent economic depression
II. Growth of the population
III. Increased mobility of the population

(A) I only
(B) III only
(C) I and II only
(D) II and III only
(E) I, II, and III

3 
 3. The author mentions the National Recovery Administration as evidence of

(A) the severity of the Great Depression
(B) federal attempts during the 1930's to increase productive capacity
(C) Roosevelt’s technical knowledge of industry
(D) federal attempts to alleviate shortages caused by the Second World War
(E) Roosevelt’s adherence to the philosophy of the mature economy

4 
 4. The term “mature economy” was most likely chosen by its proponents to reflect their belief that

(A) no further change in the nature of the economy could occur
(B) the economy had reached the fullest possible extent of its growth
(C) the people who held influential positions in the economy would make considered, wise decisions,
(D) a predictable succession of intermediate stages had provided the foundation for the economy of the 1930's
(E) the United States had been an independent entity long enough for its economy to have acquired distinctive features

5 
 5. According to the author, people who considered the prosperity of the 1950's normal should have done which of the following?

(A) Striven to maintain the general prosperity as a stable condition.
(B) Questioned the characteristics that led to greater profits for certain industries.
(C) Abandoned the attempt to provide an explanation of economic trends.
(D) Examined the unspoken assumptions underlying their beliefs.
(E) Attempted to ensure that expansion would result in high employment.

6 
 6. Which of the following best describes the author's evaluation of the Great Depression?

(A) It should not have affected the economy as profoundly as it did.
(B) It could have been predicted by the theory of the mature economy.
(C) Its significance within a broad historical context has often been misunderstood.
(D) It could have been avoided if the United States had not been industrially overbuilt.
(E) Economists in general have overemphasized its effect on people.

7 
 7. The author regards the idea thar “expansion and diversification are always desirable” ( Highlighted ) as

(A) appropriate only to the 1950's
(B) untrue and potentially harmful
(C) difficult to disprove
(D) slightly exaggerated and in need of modification
(E) useful because of the questions it raises

8 
 8. The main point of the passage is that

(A) an economic theory cannot identify the causes of changing economic conditions
(B) an economic theory that becomes widely accepted probably contains serious errors of analysis
(C) an economic theory that does not account for the possibility of changing conditions will probably be flawed
(D) economic theories that are appropriate in stable conditions fail to explain major crises
(E) economic theories cannot determine the factors that cause an economy to expand

guddo · Answer

The passage examines the "mature economy" theory, which was prominent during the 1930s Great Depression. This theory held that U.S. industrial capacity had been fully built and population growth would stagnate, making the fair distribution of existing output the primary economic problem. President Franklin D. Roosevelt's policies, like the National Recovery Administration, were influenced by this view. The theory was proven wrong after World War II when population growth surged and demand vastly outpaced industrial capacity, leading to major economic expansion. The passage then draws a parallel to the 1950s, when people assumed perpetual expansion was always beneficial. The author argues that such economic assumptions are flawed when they fail to account for changing conditions and when their underlying premises go unexamined.

1. According to the passage, supporters of the mature economy theory believed that

(A) distribution of goods among people was the major economic problem of their time
(B) the economic problems of their time resulted from investors’ unwillingness to encourage economic expansion
(C) for economic stability to be assured, all industries would have to become equally prosperous
(D) the productive capacity of the United States was precisely balanced with the demands of consumers
(E) since most industries were functioning successfully, their operation should not be disturbed

The passage directly states the core tenet of the mature economy theory: "Henceforth, the economy must be concerned with dividing things up correctly and equitably." This follows the theory's assumptions that production problems were solved and population growth would be static. The focus therefore shifted from growth to distribution. There is no support for the other options: the theory did not blame investor unwillingness (B), demand perfect equality across industries (C), claim a precise balance between capacity and demand (D), or suggest that successful industries should be left undisturbed (E).

Answer: (A)

2. The explanation in the passage of why the mature economy theory failed is supported with references to which of the following?

I. General fear of recurrent economic depression
II. Growth of the population
III. Increased mobility of the population

(A) I only
(B) III only
(C) I and II only
(D) II and III only
(E) I, II, and III

The passage provides two concrete demographic shifts that invalidated the theory's static assumptions. First, "instead of remaining static, the population began to shoot upward" (II). Second, "People who throughout the 1930's had necessarily been cautious became bolder. Many began to move to other sections of the country" (III). While a "general fear of recurrent economic depression" (I) is mentioned as something some people felt after WWII, this fear is presented as a prediction based on the faulty theory, not as a causal reason for the theory's failure.

Answer: (D)

3. The author mentions the National Recovery Administration as evidence of

(A) the severity of the Great Depression
(B) federal attempts during the 1930's to increase productive capacity
(C) Roosevelt’s technical knowledge of industry
(D) federal attempts to alleviate shortages caused by the Second World War
(E) Roosevelt’s adherence to the philosophy of the mature economy

The passage introduces Roosevelt's view of the shoe industry as suffering from "overcapacity," a key element of the mature economy theory. It then states: "Roosevelt’s National Recovery Administration and the steps it proposed to alleviate the depression were based on this theory of overcapacity." This clearly positions the NRA as a policy example stemming from the theory, not as evidence of the Depression's severity (A), attempts to increase capacity (B), Roosevelt's technical expertise (C), or WWII shortages (D).

Answer: (E)

4. The term “mature economy” was most likely chosen by its proponents to reflect their belief that

(A) no further change in the nature of the economy could occur
(B) the economy had reached the fullest possible extent of its growth
(C) the people who held influential positions in the economy would make considered, wise decisions,
(D) a predictable succession of intermediate stages had provided the foundation for the economy of the 1930's
(E) the United States had been an independent entity long enough for its economy to have acquired distinctive features

The metaphor of "maturity" implies a state of completion or full development, not a cessation of all change. The passage defines the theory's core: "the United States had been adequately built up, indeed overbuilt, industrially; the problems of production had been solved." This points to a belief that industrial growth (capacity expansion) had reached its limit. Option (B) captures this precisely. Option (A) is too absolute, as the theory acknowledged the need for distribution changes. Options (C), (D), and (E) introduce concepts not discussed in the passage.

Answer: (B)

5. According to the author, people who considered the prosperity of the 1950's normal should have done which of the following?

(A) Striven to maintain the general prosperity as a stable condition.
(B) Questioned the characteristics that led to greater profits for certain industries.
(C) Abandoned the attempt to provide an explanation of economic trends.
(D) Examined the unspoken assumptions underlying their beliefs.
(E) Attempted to ensure that expansion would result in high employment.

The author criticizes the 1950s mindset by stating, "Questions were not always raised as to the purpose of the expansion, its justification, or the basis on which it was undertaken. But the assumption that expansion is always beneficial, which those questions would have tested, proved faulty." The clear implication is that people should have interrogated the foundations of their belief in perpetual expansion. This aligns with option (D). The other options suggest different actions, maintaining prosperity (A), analyzing profit disparities (B), abandoning explanation (C), or ensuring employment (E), none of which are prescribed by the author.

Answer: (D)

6. Which of the following best describes the author's evaluation of the Great Depression?

(A) It should not have affected the economy as profoundly as it did.
(B) It could have been predicted by the theory of the mature economy.
(C) Its significance within a broad historical context has often been misunderstood.
(D) It could have been avoided if the United States had not been industrially overbuilt.
(E) Economists in general have overemphasized its effect on people.

The author argues that proponents of the mature economy theory misinterpreted the Depression's scale and duration. They "viewed as a strong tide a phenomenon that economic history will probably regard as hardly more than a ripple." This indicates the author believes the Depression's historical significance, as a deep but temporary crisis, not a permanent new plateau, was misunderstood by those who built a long-term theory upon it. The author does not claim it was less profound than it seemed (A), that the theory predicted it (B), that it was avoidable (D), or that its human impact is overstated (E).

Answer: (C)

7. The author regards the idea that “expansion and diversification are always desirable” (Highlighted) as

(A) appropriate only to the 1950's
(B) untrue and potentially harmful
(C) difficult to disprove
(D) slightly exaggerated and in need of modification
(E) useful because of the questions it raises

The author's judgment is explicitly negative. The passage states this assumption "proved faulty" and warns that "the danger lies in continuing the pretense that they are still valid." This frames the idea as both incorrect (untrue) and dangerous if uncritically maintained (potentially harmful). It is not presented as period-appropriate (A), merely exaggerated (D), or useful (E). While not explicitly called "difficult to disprove" (C), the author's concern is about the danger of pretending it's valid, not the difficulty of disproving it.

Answer: (B)

8. The main point of the passage is that

(A) an economic theory cannot identify the causes of changing economic conditions
(B) an economic theory that becomes widely accepted probably contains serious errors of analysis
(C) an economic theory that does not account for the possibility of changing conditions will probably be flawed
(D) economic theories that are appropriate in stable conditions fail to explain major crises
(E) economic theories cannot determine the factors that cause an economy to expand

The passage structures its argument around two historical examples of flawed economic reasoning: the 1930s mature economy theory (which assumed static conditions) and the 1950s belief in perpetual expansion (which assumed dynamic conditions were always good). The common flaw is a failure to account for or properly evaluate changing conditions. The mature economy theory failed because conditions changed (population grew, mobility increased). The 1950s assumption was flawed because it didn't question the purpose and justification of expansion under changing circumstances. This makes (C) the best encapsulation of the main point. The passage does not claim theories cannot identify causes (A), that widely accepted theories are usually wrong (B), that theories only fail during crises (D), or that theories cannot determine expansion factors (E).

Answer: (C)

In the 1930's, during the Great Depression, some highly regarded econo

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In the 1930's, during the Great Depression, some highly regarded econo

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