In October 1987 the United States stock market suffered a major drop i

Question

In October 1987 the United States stock market suffered a major drop in prices. During the weeks after the drop, the volume of stocks traded also dropped sharply to well below what had been the weekly average for the preceding year. However, the volume for the entire year was not appreciably different from the preceding year's volume.

Which of the following, if true, resolves the apparent contradiction presented in the passage above?

(A) Foreign investors usually buy United States stocks only when prices are low. 
(B) The number of stock buyers in 1987 remained about the same as it had been the preceding year. 
(C) For some portion of 1987, the volume of stocks traded was higher than the average for that year. 
(D) The greater the volume of stocks traded in a given year, the lower the average price per share on the United States stock market for that year. 
(E) The volume of stocks traded rises and falls in predictable cycles.

CrackverbalGMAT · Answer

The correct answer is  C . Any question that asks you to resolve a contradiction or paradox requires for you to correctly identify what part is paradoxical or doesn't make sense. In this case, it is that  volume of stocks traded in 1987 matched the previous year DESPITE a clear period of time where there was a huge drop in trading volume . What we're looking for is something that makes this set of events make sense. Essentially, something which suggests more stock trading happened in 1987 at some other time.

Option A  - Not linked to the paradox at all. The question stimulus makes no distinction between local and foreign investors, so we can't say anything about the impact they might have in the options.  OUT

Option B  - This doesn't help resolve the paradox since the number of buyers and number of stocks traded are different entities. You could have a thousand buyers trade a thousand stocks, or eight buyers trade a million. These are unrelated to each other.  OUT

Option C  - This states that at some point in 1987, the volume of stocks traded was higher than the preceding year. This does help explain the contradiction, since this high trade volume during one part of the year helps to offset the low trade volume at the time of the crash. This option therefore works and is  CORRECT .

Option D  - Average price per share is utterly irrelevant here. We are only concerned with the volume of stocks traded, the price or value of them never factors into the contradiction. Always look out for 'red herring' info, like the kind provided on stock prices at the start of the stimulus. This information ended up not being relevant to answering the question, and only exists to trap you.  OUT

Option E  - If this is true, it still doesn't actually affect the paradox. We know nothing about the nature of the cycles, or about whether the drop in October was part of the low period of the cycle. Hence, this option is irrelevant.  OUT

- Matoo from CrackVerbal

VerbalBot · Answer

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In October 1987 the United States stock market suffered a major drop i

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In October 1987 the United States stock market suffered a major drop i

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