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Posts: 24
Updated on: 18 Aug 2025, 01:03
Originally posted by GMATslaughter100 on 17 Aug 2025, 09:26.
Last edited by GMATslaughter100 on 18 Aug 2025, 01:03, edited 1 time in total.
Last edited by GMATslaughter100 on 18 Aug 2025, 01:03, edited 1 time in total.
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
55%
(hard)
Question Stats:
50% (00:54) correct
50%
(00:56)
wrong
based on 72
sessions
History
Date
Time
Result
Not Attempted Yet
How does inflation occur?
(1) Lowering interest rates can stimulate economic growth and encourage borrowing and investment. However, since people have more money, there will likely be an increase in consumer spending, which leads to inflation.
(2) When interest rates are lower, people are able to spend and invest more freely as borrowing is cheaper. This increases the demand for goods and services, which generally leads to an increase in prices.
(1) Lowering interest rates can stimulate economic growth and encourage borrowing and investment. However, since people have more money, there will likely be an increase in consumer spending, which leads to inflation.
(2) When interest rates are lower, people are able to spend and invest more freely as borrowing is cheaper. This increases the demand for goods and services, which generally leads to an increase in prices.
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Posts: 24
KarishmaB RonPurewal MartyMurray GMATNinja WhitEngagePrep
Hi experts, I am not good at this kind of verbal DS, would you help shed some light on it?
I do not know what GMAT tries to test here. I feel like, inflation is a complex topic, it can be caused by so many reasons. (1)(2) may provide some, but it does not have the completeness. So I think they cannot sufficiently answer the question, we should choose E. However, some may say D should be the answer since they both explain a bit about the mechanism of inflation. So how should we approach this sort of question? Thanks in advance!
Hi experts, I am not good at this kind of verbal DS, would you help shed some light on it?
I do not know what GMAT tries to test here. I feel like, inflation is a complex topic, it can be caused by so many reasons. (1)(2) may provide some, but it does not have the completeness. So I think they cannot sufficiently answer the question, we should choose E. However, some may say D should be the answer since they both explain a bit about the mechanism of inflation. So how should we approach this sort of question? Thanks in advance!
If we bring in other factors from our knowledge, we should say you this is E, but in that case DS should be a Stanley Fisher's book, so definitely D, they explain why it happens and from what it stems from and despite not taking all the factors that in real life bring in inflation, l this is pretty enough.
GMATslaughter100
GMATslaughter100
This is not an official question so I wouldn't worry about it. Rest, I would try to use only the information given along with what is common knowledge. Think - would someone from non Economics background know? If not, don't use it. But what everyone is supposed to know (e.g. inflation means things cost more should be used).
Also the question needs to be better framed: What could cause inflation?
'How does inflation occur' implies there is one way in which it occurs. Though there are many other causes that could lead to inflation. All in all, ignore.
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Posts: 24
Thanks Karishma for your kind reply.
KarishmaB
Hi KarishmaB
I attemped this today but not sure why (D) is the answer.
My reasoning is it uses words "likely" and "generally" and both don't mean certainty so how can both individually answer what does cause inflation?
(1) Lowering interest rates can stimulate economic growth and encourage borrowing and investment. However, since people have more money, there will likely be an increase in consumer spending, which leads to inflation.
Likely an increase in consumer spending --> inflation
(2) When interest rates are lower, people are able to spend and invest more freely as borrowing is cheaper. This increases the demand for goods and services, which generally leads to an increase in prices.
Please let me know if I am faltering somewhere in my thought process.
_________________
I attemped this today but not sure why (D) is the answer.
My reasoning is it uses words "likely" and "generally" and both don't mean certainty so how can both individually answer what does cause inflation?
(1) Lowering interest rates can stimulate economic growth and encourage borrowing and investment. However, since people have more money, there will likely be an increase in consumer spending, which leads to inflation.
Likely an increase in consumer spending --> inflation
(2) When interest rates are lower, people are able to spend and invest more freely as borrowing is cheaper. This increases the demand for goods and services, which generally leads to an increase in prices.
Please let me know if I am faltering somewhere in my thought process.
KarishmaB
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RonPurewal
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Expert reply
Not an official problem (although some of the official "non-math DS" problems have had issues😨—they're definitely not all up to GMAC's usual meticulous standards).
This problem has a serious flaw: The central question ("How does inflation occur?") is ambiguous. We have no way of telling whether the problem writer meant to call any valid mechanism for inflation "sufficient", or whether she/he meant to reserve "sufficient" for a complete accounting of all possible causes of inflation.
We can rule out the latter possibility with decent confidence, though, because in that case we could not possibly hope to have any insight into the problem without extensive factual knowledge from economics—namely, we would have to KNOW ALL possible causes of inflation. So, the question must have the former meaning: If a statement EXPLAINS AT LEAST ONE cause/mechanism of inflation, then it's "sufficient"..
.
With the above realization in hand, statement 1 is clearly sufficient. Statement 2 contains the only other nontrivial step in the problem: we have to recognize that "an increase in prices" is the basic definition of inflation, making that statement also sufficient.
This step is probably the single thing here that's most reminiscent of how GMAC writes problems: Official DS problems often require REPHRASING of the statements into equivalent forms that bear more directly on the central question.
This problem has a serious flaw: The central question ("How does inflation occur?") is ambiguous. We have no way of telling whether the problem writer meant to call any valid mechanism for inflation "sufficient", or whether she/he meant to reserve "sufficient" for a complete accounting of all possible causes of inflation.
We can rule out the latter possibility with decent confidence, though, because in that case we could not possibly hope to have any insight into the problem without extensive factual knowledge from economics—namely, we would have to KNOW ALL possible causes of inflation. So, the question must have the former meaning: If a statement EXPLAINS AT LEAST ONE cause/mechanism of inflation, then it's "sufficient"..
.
With the above realization in hand, statement 1 is clearly sufficient. Statement 2 contains the only other nontrivial step in the problem: we have to recognize that "an increase in prices" is the basic definition of inflation, making that statement also sufficient.
This step is probably the single thing here that's most reminiscent of how GMAC writes problems: Official DS problems often require REPHRASING of the statements into equivalent forms that bear more directly on the central question.
Posts: 24
I see, thanks a lot!
RonPurewal
This Question is Locked Due to Poor Quality
Hi there,
The question you've reached has been archived due to not meeting our community quality standards. No more replies are possible here.
Looking for better-quality questions? Check out the 'Similar Questions' block below
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