Large increases in government spending cause a net decrease in jobs ov

Question

Large increases in government spending cause a net decrease in jobs over time. Thus, as the government spends more money in the next decade, the unemployment rate will rise. Such a rise will cause interest rates to increase as well; as a result, corporate profits will almost certainly decline over the next decade.

Which of the following is an assumption required by the argument’s conclusion?

A) Increases in corporate profits from product innovation will not be large enough to offset the negative effect of increased interest rates.
B) Government policy makers will not become more aware of the steps they can take to reduce wasteful healthcare programs run by the government.
C) Increased interest rates similarly affect all small and large businesses.
D) Some economists predict a greater than 1.5 percent rise in the unemployment rate during the next 15 years.
E) The government is the sole cause of rising unemployment.

AndrewN · Accepted Answer

In the interest of helping the community, since I see that no other Expert has weighed in yet, I will offer my thoughts on each option. In any assumption question, you have to look for a crucial link that connects A to C. Without that link, a gap always exists. Since this question asks specifically about  an assumption required by the argument's conclusion , we must first be able to put a finger on that conclusion. What does the passage have in store for us?

Interesting. There are actually two conclusions here, each of which is ushered in by a transition ( thus  and  as a result ). Sentence 1 outlines an inverse correlation between government spending and the number of jobs held or available: a  large increase  in such spending leads to a  decrease in jobs  in the long run. Sentence 2 provides the first conclusion, more or less following the script of the first line while forecasting what will develop over the next decade: the government will spend more, and unemployment will rise. Sentence 3 extends the effect of the previous line. We understand that rising unemployment will see a concurrent increase in  interest rates , and the latter half of the sentence provides the final conclusion of the passage: the chain of events outlined earlier will  almost certainly  lead to a decline in  corporate profits  over the next decade. We can sum up the domino effect thus:

increase government spending → decrease number of jobs (increase unemployment) → increase interest rates → decrease corporate profits

Since the question asks about a necessary assumption in the conclusion, we need to ask ourselves how corporate profits suddenly entered the picture. The correct answer should provide that link.

Leave out the highlighted part, and this answer looks perfect. If you prefer the negation technique for assumption questions, look at what happens when you remove the  not :

Increases in corporate profits... will be large enough to offset the negative effect of increased interest rates.

If that were true, the conclusion would not hold, period, so we have found a required assumption. The problem is, this answer choice offers too much information, and we need not be able to tell whether the profits come from product innovation or any other stream, as long as the bottom line presents a certain picture. I would yellow-light this answer and move on to look for more obvious outliers.

We are not interested in the level of awareness policy makers may or may not have in the next decade. If you negate this answer choice by removing the  not , you are left with a nagging  so what  that has no satisfactory answer. Simply put, there is no direct correlation between such awareness and the predicted decline in corporate profits. As such, this cannot be a required assumption. I will admit to being taken aback by the mention of  wasteful healthcare programs  as well, but if we gave  product innovation  a free pass above, I see no reason we could not do the same here. On the whole, though, we have no compelling reason to choose this answer, and it is the former concern that pushes this one out of contention.

Extreme, overreaching language is a hallmark of incorrect answers, and this one proves no exception. Why would the effect (note the "e-" since we are talking about an outcome) of increased interest rates have to be the same for  all  businesses under the sun? A decrease in corporate profits is enough, not necessarily a similar decrease for each and every business.

This is as off-topic as a required assumption could possibly be. Do we really need to invoke  some economists  to bridge the gap to the conclusion? What about  some  in general? Is there no consensus on this prediction? If not, then what bearing would it have on the conclusion? Maybe  some other  economists got it right instead. Furthermore, why does the rise in the unemployment rate  need  to be greater than 1.5 percent? This answer is easy to see off.

Notice the absolute language again. It is just as wrong as before. We are not interested in the exclusive cause of rising unemployment, not to mention that the conclusion  of the passage  ties into a decline in corporate profits. This answer shifts the focus to the intermediate conclusion instead. I cannot say that that in and of itself disqualifies this answer choice, but it does not help. Even if we choose to focus on the intermediate conclusion, we are  not  required to assume that the government and the government only is the cause of rising unemployment. The conclusion could be just as valid if the government shared that burden with some other (unmentioned) entity.

Since (A) is the best of the lot, the hardest to argue against, I would feel comfortable flipping the switch to  green  instead. I simply cannot get behind any other answer, and that is what guides my hand more than knowing what the correct answer must be. Do I think that this question would appear as is on the GMAT™? No. That highlighted part of (A) is not something that would slip through the cracks and make its way onto the test. But that does not mean we cannot learn anything from the question. If I had to rate it on a scale of 1-10, I would give it a 7. The language is close enough to what might appear on the GMAT™, and answer choices generally conform to the types that appear therein.

I hope that helps. If anyone has further questions or concerns, I would be happy to address them. Good luck with your studies.

- Andrew

Mayankcadbury · Answer

GMATNinja  need your help in this one

Why option B is not right?

Tuputuki · Answer

A) Increases in corporate profits from product innovation will not be large enough to offset the negative effect of increased interest rates --- out of scope
B) Government policy makers will not become more aware of the steps they can take to reduce wasteful healthcare programs run by the government --- out of scope
C) Increased interest rates similarly affect all small and large businesses -- discussion is regarding corporate
D) Some economists predict a greater than 1.5 percent rise in the unemployment rate during the next 15 years -- don't know
E) The government is the sole cause of rising unemployment --- perfect

MBAB123 · Answer

Hey, Option B talks about reducing wasteful spending on healthcare which could be just one of the factors in the overall spending. Whether the govt does that or not, does not really have an impact on the overall govt spending as healthcare could be 1% of the total spending or it might even be 99% of the total spending. Point is that it is just 1 one of the expenses and we do not know its proportion. I am no expert but I hope this helps!

Mayankcadbury · Answer

Thanks. It was much needed explanation

rhythminme2008 · Answer

Personally, I think that Answer A introduces another element of assumption: increased in profit from product innovation. The Q stem mentioned nothing about this. How can you assume that there is an increase in profit from product innovation? Does product innovation necessarily lead to an increase in profit? I think this question is poorly designed.

AvraKaDabra · Answer

Not sure why the question's OA is A and not E. Could you please explain?

k24Moriarty · Answer

Please explain why A should be the assumption

Sdhawan15 · Answer

I don’t understand why E is not the correct option. If government is not the sole cause of rising unemployment then government spending cannot be directly linked to increase in unemployment rates. Hence, whole argument falls apart.

Also, if we negate option A, increase in CP is large enough to offset the -ve effect of increased interest rates: can we surely say that this will not lead to even a slight decline in the corporate profits?

VerbalBot · Answer

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Large increases in government spending cause a net decrease in jobs ov

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