Test: Economics


20 Questions MCQ Test Verbal for GMAT | Test: Economics


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This mock test of Test: Economics for GMAT helps you for every GMAT entrance exam. This contains 20 Multiple Choice Questions for GMAT Test: Economics (mcq) to study with solutions a complete question bank. The solved questions answers in this Test: Economics quiz give you a good mix of easy questions and tough questions. GMAT students definitely take this Test: Economics exercise for a better result in the exam. You can find other Test: Economics extra questions, long questions & short questions for GMAT on EduRev as well by searching above.
QUESTION: 1

A recent report from the International Energy Agency (IEA) on international oil supplies indicates that oil prices could increase to over $100 a barrel because of the global energy shortage. The International Energy Agency, an organization representing the 26 nations of the Organization for Economic Cooperation and Development (OECD), is generally considered a reliable indicator of international energy supplies. In a distinct change from its former reports, the IEA has suggested in its recent report that world governments need to make urgent revisions on energy-related policies if a global energy crisis is to be avoided.

According to the report, the reason for the IEA's warning is its anticipation that economic progress will increase global energy demands by about 50% in the next fifteen years. The majority of this demand is expected to come from China and India, which will be accountable for over 60 percent of carbon emissions, the chief reason for global warming, by 2030. Another reason stated for the IEA’s cautionary notice is that the number of oil suppliers is steadily decreasing. Since oil deposits in the North Sea region will soon be exhausted, countries supplying oil will be limited to those in the Gulf of Persia.

The government can address this imminent crisis through just one policy change.  A team of Harvard analysts has predicted that if oil production is considerably expanded, oil prices could fall in the next decade. The team maintains that if previously under-utilized sources of oil are harnessed and more funding is provided for the setting up of new local refineries, the impending crisis could be avoided.

According to the passage, the International Energy Agency agrees over which of the following?

Solution:

Passage Analysis

 

Summary and Main Point

Answer Choices

A

Members of the OECD will have primary access to oil supplies.

Incorrect: Out of Scope

This information is not stated in the passage.

B

There is no other reliable indicator of international energy supplies.

Incorrect: Out of Scope

This information is not stated in the passage.

C

Steps can be taken to avert an energy crisis on a worldwide level.

Correct

This information is stated in the last sentence of the first paragraph. The IEA suggests that if a global energy crisis is to be avoided, then the world governments need to take some urgent steps.

D

Some countries with increased demand for oil will escalate the issue of global warming by 60%.

Incorrect: Inconsistent

The passage states that China and India will be accountable for the majority of the carbon emissions (60%) and that these emissions are a chief reason for global warming. The passage does not tell us anything about the increase in the gravity of global warming.

E

Countries with dwindling oil supplies are likely to become much larger consumers of oil.

Incorrect: Out of Scope

This information is not stated in the passage.

QUESTION: 2

A recent report from the International Energy Agency (IEA) on international oil supplies indicates that oil prices could increase to over $100 a barrel because of the global energy shortage. The International Energy Agency, an organization representing the 26 nations of the Organization for Economic Cooperation and Development (OECD), is generally considered a reliable indicator of international energy supplies. In a distinct change from its former reports, the IEA has suggested in its recent report that world governments need to make urgent revisions on energy-related policies if a global energy crisis is to be avoided.

According to the report, the reason for the IEA's warning is its anticipation that economic progress will increase global energy demands by about 50% in the next fifteen years. The majority of this demand is expected to come from China and India, which will be accountable for over 60 percent of carbon emissions, the chief reason for global warming, by 2030. Another reason stated for the IEA’s cautionary notice is that the number of oil suppliers is steadily decreasing. Since oil deposits in the North Sea region will soon be exhausted, countries supplying oil will be limited to those in the Gulf of Persia.

The government can address this imminent crisis through just one policy change.  A team of Harvard analysts has predicted that if oil production is considerably expanded, oil prices could fall in the next decade. The team maintains that if previously under-utilized sources of oil are harnessed and more funding is provided for the setting up of new local refineries, the impending crisis could be avoided.

Which of the following can be derived on the basis of the information given in the passage?

Solution:

Passage Analysis

 

Summary and Main Point

 

 This is a General Inference question. The correct answer will based on what is stated in the passage, although it itself may not be explicitly stated. Since it is an open ended Inference question, we will not be able to pre-think on specific lines; nevertheless, we must keep in mind that any answer choice that cannot be backed by the information given in the passage is incorrect. 

Answer Choices

A

The IEA probably believes that it is unlikely that there will be increased funding for the setting up of new local refineries.

Incorrect: Out of Scope

We are not given any information on IEA’s take on the required funding mentioned by the team of Harvard analysts.

B

The new report reflects a change in the IEA’s stated position on the global energy crisis.

Correct

This information can be deduced from the following section of the passage:

In a distinct change from its former reports, the IEA has suggested in its recent report that world governments need to make urgent revisions on energy-related policies if a global energy crisis is to be avoided.

C

The increased oil consumption in India and China will reduce the amount of oil that is available for other countries and hence retard their economic progress.

Incorrect: Out of Scope

The impact of the increased energy demands by India and China on the economic progress of other countries is neither stated nor implied in the passage.

D

Oil prices will decrease if previously unused sources of oil are harnessed.

Incorrect: Inconsistent

First of all the stated decrease in oil prices forms an opinion by the team of Harvard Analysts and is not a statement that most agencies agree on. Secondly, even the Harvard analysts do not make such a strong prediction. The choice uses the word “will” whereas the team says the prices “could” decrease.

E

World governments are not taking any tangible steps to avoid the oil crisis.

Incorrect: Inconsistent

The IEA states that world governments should make urgent revisions to oil-related policies. This statement does not indicate that governments have not taken any practical measures to resolve the situation.

QUESTION: 3

A recent report from the International Energy Agency (IEA) on international oil supplies indicates that oil prices could increase to over $100 a barrel because of the global energy shortage. The International Energy Agency, an organization representing the 26 nations of the Organization for Economic Cooperation and Development (OECD), is generally considered a reliable indicator of international energy supplies. In a distinct change from its former reports, the IEA has suggested in its recent report that world governments need to make urgent revisions on energy-related policies if a global energy crisis is to be avoided.

According to the report, the reason for the IEA's warning is its anticipation that economic progress will increase global energy demands by about 50% in the next fifteen years. The majority of this demand is expected to come from China and India, which will be accountable for over 60 percent of carbon emissions, the chief reason for global warming, by 2030. Another reason stated for the IEA’s cautionary notice is that the number of oil suppliers is steadily decreasing. Since oil deposits in the North Sea region will soon be exhausted, countries supplying oil will be limited to those in the Gulf of Persia.

The government can address this imminent crisis through just one policy change.  A team of Harvard analysts has predicted that if oil production is considerably expanded, oil prices could fall in the next decade. The team maintains that if previously under-utilized sources of oil are harnessed and more funding is provided for the setting up of new local refineries, the impending crisis could be avoided.

Which of the following statements would the author most likely agree with?

Solution:

Passage Analysis

 

Summary and Main Point

 

 

This is an Inference question. The correct answer will be supported by the information provided in the passage but may not contain information that is explicitly stated in the passage. Analyze each choice carefully and eliminate the ones that are not implied by the passage. 

Answer Choices

A

Both the IEA and the team of Harvard analysts agree that the oil crisis is avoidable.

Correct

This information can be deduced from two different sections of the passage. In the last sentence of the first paragraph, we are told that the IEA has suggested the world governments to take some urgent steps if the global oil crisis is to be avoided. Similarly, in the last sentence of the second paragraph, we are told that the team believes that the crisis could be avoided if the necessary steps are taken.

B

Other reliable indicators of international energy supplies are needed.

Incorrect: Out of Scope

The author states that the IEA is a reliable indicator but does not suggest that others are needed.

C

If the impending energy crisis is avoided, global warming will decrease.

Incorrect: Out of Scope

There is no information given in the passage to deduce anything about the gravity of the global warming situation.

D

The Harvard analysts disagree that a global oil crisis is impending.

Incorrect: Inconsistent

The lasts sentence of the passage states that:

The team maintains that if previously under-utilized sources of oil are harnessed and more funding is provided for the setting up of new local refineries, the impending crisis could be avoided.

From the above section, we can infer that the team agrees that there is an impending crisis but states that it could be avoided, if the necessary steps are taken.

E

The opinion of the team of Harvard analysts has more credibility than the report issued by the IEA.

Incorrect: Out of Scope

We do not know if the author believes this since no evaluation of either of the arguments is presented in the passage.

QUESTION: 4

A recent report from the International Energy Agency (IEA) on international oil supplies indicates that oil prices could increase to over $100 a barrel because of the global energy shortage. The International Energy Agency, an organization representing the 26 nations of the Organization for Economic Cooperation and Development (OECD), is generally considered a reliable indicator of international energy supplies. In a distinct change from its former reports, the IEA has suggested in its recent report that world governments need to make urgent revisions on energy-related policies if a global energy crisis is to be avoided.

According to the report, the reason for the IEA's warning is its anticipation that economic progress will increase global energy demands by about 50% in the next fifteen years. The majority of this demand is expected to come from China and India, which will be accountable for over 60 percent of carbon emissions, the chief reason for global warming, by 2030. Another reason stated for the IEA’s cautionary notice is that the number of oil suppliers is steadily decreasing. Since oil deposits in the North Sea region will soon be exhausted, countries supplying oil will be limited to those in the Gulf of Persia.

The government can address this imminent crisis through just one policy change.  A team of Harvard analysts has predicted that if oil production is considerably expanded, oil prices could fall in the next decade. The team maintains that if previously under-utilized sources of oil are harnessed and more funding is provided for the setting up of new local refineries, the impending crisis could be avoided.

Which of the following best describes the author’s main purpose behind sharing the opinions of the team of Harvard analysts?

Solution:

Passage Analysis

 

Summary and Main Point

 

 

This is a Detail oriented Function question. As discussed in the passage analysis, the author indicates that the crisis can be avoided by making just one policy change.  He backs this up by using the opinions of the team of Harvard analysts.

Answer Choices

A

To suggest that the IEA might have wrongly preempted an impending crisis

Incorrect: Out of Scope

First of all, the author does not give/suggest any personal opinion on the IEA’s understanding of the crisis. Secondly, both the Harvard team of analysts and the IEA agree that a crisis is impending. 

B

To give information about the possible sources of oil supply 

Incorrect: Inconsistent

First of all, there is no specific information given about where all the oil supply could come from. There is indeed a mention of possibly increasing oil supply. But this information is given to us to serve a broader purpose. The author wants to share a way with which the crisis can be avoided.

C

To share an opinion that could be superior to the one stated by the IEA about the supply of oil

Incorrect: Out of Scope

The author does not suggest any supremacy of opinions/authority in the passage.

D

To bring out an inherent contradiction in the IEA’s prediction of oil deposits

Incorrect: Out of Scope

There is no inherent contradiction anywhere in the passage, leave alone IEA’s prediction.

E

To suggest one way in which the oil supply crisis can be averted. 

Correct

QUESTION: 5

The poverty line, also known as the poverty threshold, is defined as the minimum level of income that is necessary for the people of a specific nation. The poverty line of a country is calculated by identifying the total amount of necessary expenses that an average adult requires over the course of one year, with the main such expense usually being house rent. Additionally, this calculation also typically includes the basic expenses of food and clothing. This measure of minimum income required is purely quantitative and does not estimate either the specific needs of people from different low-income groups or the different ways in which low-income groups experience poverty in different countries. The solely quantitative basis of calculating the minimum required income, therefore, may in fact lead to either the overestimation or the underestimation of the number of people who actually live under the poverty line in a given country. Another reason that renders the poverty line short of being a very reliable indicator of actual poverty levels is that certain nations, usually developed ones, with strong welfare systems fail to account for ‘in-kind’ transfers when calculating the poverty threshold.  Such calculations do not regard the benefits received from antipoverty programs such as food stamps, housing assistance, etc. as income, thereby presenting a distorted picture of the level of poverty in the nation.

The primary purpose of the passage is to

Solution:

Passage Analysis

Summary and Main Point

This is a Main Idea question. The correct answer must be broad enough to encompass all of the paragraphs of the passage without veering outside the scope. Incorrect answer choices are often too narrow or focus only on one part of the passage.

The correct answer for this question should match the results of our passage analysis: that the author believes that the poverty line may not actually be the most reliable indicator of how many people actually live in poverty.

Answer Choices

A

suggest that the poverty line should not be used as an indicator of actual poverty levels in developed nations, since its use could lead to a miscalculation of the number of people actually living in poverty

Incorrect: Out of Context

The reference to developed countries is made in the context of a larger point that describes one of the two listed shortcomings of the way PL is calculated. This discussion forms a part of the whole passage that is designed to lead us to the author’s conclusion, which deals with all countries and not just developed ones.

B

provide a basis for the conclusion that the economic prosperity of certain countries may lead to a miscalculation of their respective poverty lines

Incorrect: Out of Context

Like choice A, this choice too focuses on a detail mentioned in the passage and presents it in the wrong context. The economic prosperity mentioned in the choice could relate to developed nations mentioned in the passage; however, as stated in the explanation for choice A, the reference to developed countries is made in the context of a larger point that describes one of the two listed shortcomings of the way PL is calculated. These two shortcomings form a part of a larger discussion.

C

identify the reasons that the poverty line does not account for certain sources of income such as social welfare systems

Incorrect: Out of Scope

The passage identifies reasons to support the conclusion that PL may be unreliable indicator of poverty because of the way it is calculated. One of these reasons is the fact that the calculation does not consider certain sources of income such as social welfare.  The passage goes not identify the reasons for the same.

D

argue that, because of the way it is calculated, poverty line, as a measure of the number of people living in poverty, may give inaccurate results

Correct

This choice matches the result of our passage analysis and pre-thinking.

E

propose that the poverty line be replaced by an improved system of calculation for the minimum income required 

Incorrect: Out of Scope

The author does not make any suggestion in the passage. 

QUESTION: 6

The poverty line, also known as the poverty threshold, is defined as the minimum level of income that is necessary for the people of a specific nation. The poverty line of a country is calculated by identifying the total amount of necessary expenses that an average adult requires over the course of one year, with the main such expense usually being house rent. Additionally, this calculation also typically includes the basic expenses of food and clothing. This measure of minimum income required is purely quantitative and does not estimate either the specific needs of people from different low-income groups or the different ways in which low-income groups experience poverty in different countries. The solely quantitative basis of calculating the minimum required income, therefore, may in fact lead to either the overestimation or the underestimation of the number of people who actually live under the poverty line in a given country. Another reason that renders the poverty line short of being a very reliable indicator of actual poverty levels is that certain nations, usually developed ones, with strong welfare systems fail to account for ‘in-kind’ transfers when calculating the poverty threshold.  Such calculations do not regard the benefits received from antipoverty programs such as food stamps, housing assistance, etc. as income, thereby presenting a distorted picture of the level of poverty in the nation.

Which of the following can be inferred from the last two sentences of the passage?

Solution:

Passage Analysis

Summary and Main Point

 

This is a Detail based inference question. Let’s go back to the relevant section of the passage and try to understand the implication of the information given by the author here. The author states that because the ‘in-kind’ benefits are not counted as income, the real extent of poverty in the nation is not calculated properly. In other words, the author says that these benefits should be treated as income while calculating the number of people living below the poverty line. Now, the natural implication of treating these benefits as income is that people who receive these benefits would have more income than is calculated otherwise. Therefore, the possibility that these people might actually not be under the poverty line surfaces, meaning that the extent of poverty is being over-estimated by not treating these benefits as income.

Answer Choices

A

By treating the benefits as income, the nations would not be correctly estimating the extent of poverty in their countries.

Incorrect: Opposite

As discussed in the pre-thinking, the author treats the exclusion of such benefits from the calculation as a negative of the PL. However, this choice states the opposite of the thought expressed by the author.

B

Although the antipoverty programs give benefits to the people, their effects are not very significant and hence the nations fail to account for them. 

Incorrect: Out of Scope

There is no such cause and effect relationship given in the passage. 

C

A calculation done with considering the benefits as income would present a more realistic picture of the poverty in the nation, just as it probably does in developing nations. 

Incorrect: Inconsistent

This would have been the correct answer if the comparison with developing nations had been presented.  The author gives us no such comparison in the passage.

D

These nations run a potential risk of overestimating the extent of poverty in their countries by not treating the benefits as income.

Correct

This answer choice is on the same lines as the implication we understood from the discussion in the pre-thinking portion.

E

Housing assistance and food stamps are indeed income for the people who receive them, and hence such people should not get benefits from any other antipoverty program. 

Incorrect: Inconsistent

The author does imply that such benefits should be considered income, but to say that these people should not get benefits from any other poverty program is too extreme. All that the author intends to say is that such benefits should also be counted as income while determining how many people are under the poverty line. 

QUESTION: 7

For once, the whys are turning out to be more important than the hows. A study shows that consumers who become fixated on how to achieve a goal probably face more difficulty in achieving their aims than people who think abstractly about why they want to do something. The authors of the study conducted four experiments to examine consumer behavior when it came to the goal of saving money. In one such experiment, some people were asked to make a specific plan to save money, whereas others were not asked to plan. Then some people were asked to focus on why they wanted to save money. Later on all participants were given the opportunity to buy candy. Subjects who were thinking concretely and formed a specific plan were less able to avoid the candy purchase than those who had not formed a plan at all.

 

 To elucidate the results, the authors cite the instance of person who wants to save money and hence makes a plan for achieving this goal. This person plans to save money by purchasing fewer clothing items at the mall. On investigating how this plan influences the person's response to other money-saving opportunities, for example, would the person be more likely to order a cheaper meal at a restaurant, avoid making an impulse purchase, or combine errands to save money on gas etc., the authors found that when people focus on concrete aspects of how they want to achieve goals, they become more closed-minded and consequently less likely to take advantage of opportunities that fall outside their plans. In contrast, people who focus on the why aspect are more likely to consider out-of-plan opportunities to achieve their goals.

 

Furthermore, in the same experiment, the group that performed the best was the one that was asked to focus on the “why” and had formed a plan implicitly.   Accordingly the authors conclude that planning is more effective when people plan with the complete understanding of “why”.    They suggest that this strategy is particularly effective when the original plan turns out to be unrealistic in terms of feasibility or when other goal-directed activities become available.

The author is primarily concerned with

Solution:

Passage Analysis

Summary and Main Point

This is a Main Idea question. 

So let’s review the individual paragraph summary to get to the main point of the passage. The first paragraph presents a study to indicate that “why” is more important than “how”. The second paragraph presents an example to explain the observed results of the study.   The final paragraph presents the final conclusion of the study. Hence, the main point of the passage is to present a study, explain its findings, and present its final conclusion. 

Answer Choices

A

addressing a key issue in consumer psychology and behavior

Incorrect: Out of Scope

The author makes no effort to point out, leave alone address, any issue in consumer psychology. The passage is not written from the point of view of offering a solution of any sort. It is very descriptive in nature and the author doesn’t get involved with the contents of the mentioned theory.

B

making the readers understand how they can save money

Incorrect: Out of Context

The money example is given to present the analysis proposed by the study’s authors or to describe the experiment undertaken by them. The focus of the passage is by no means saving money.

C

describing a theory that deals with goal determination

Incorrect: Out of Scope

The author  describes a study but it is not related with determining a goal but instead with a strategy on pursuing the same.

D

advocating consumers to follow a particular strategy while making and executing plans

Incorrect: Out of Scope

Once again, this passage is very descriptive in nature and the author of the passage does not give any opinion on the issue for us to infer what his/her take on the matter is.

E

presenting a study, explaining its findings, and outlining its final conclusion.

Correct

This choice matches the main point we came up with in the summary and main point section. 

QUESTION: 8

For once, the whys are turning out to be more important than the hows. A study shows that consumers who become fixated on how to achieve a goal probably face more difficulty in achieving their aims than people who think abstractly about why they want to do something. The authors of the study conducted four experiments to examine consumer behavior when it came to the goal of saving money. In one such experiment, some people were asked to make a specific plan to save money, whereas others were not asked to plan. Then some people were asked to focus on why they wanted to save money. Later on all participants were given the opportunity to buy candy. Subjects who were thinking concretely and formed a specific plan were less able to avoid the candy purchase than those who had not formed a plan at all.

 To elucidate the results, the authors cite the instance of person who wants to save money and hence makes a plan for achieving this goal. This person plans to save money by purchasing fewer clothing items at the mall. On investigating how this plan influences the person's response to other money-saving opportunities, for example, would the person be more likely to order a cheaper meal at a restaurant, avoid making an impulse purchase, or combine errands to save money on gas etc., the authors found that when people focus on concrete aspects of how they want to achieve goals, they become more closed-minded and consequently less likely to take advantage of opportunities that fall outside their plans. In contrast, people who focus on the why aspect are more likely to consider out-of-plan opportunities to achieve their goals.

Furthermore, in the same experiment, the group that performed the best was the one that was asked to focus on the “why” and had formed a plan implicitly.   Accordingly the authors conclude that planning is more effective when people plan with the complete understanding of “why”.    They suggest that this strategy is particularly effective when the original plan turns out to be unrealistic in terms of feasibility or when other goal-directed activities become available.

Which of the following statement can be derived on the basis of the analysis done by the study authors?

Solution:

Passage Analysis

Summary and Main Point

This is an Inference question. The word “derived” indicates the correct answer will follow closely from what is directly stated in the passage, but it may not itself be explicitly stated in the passage. Select the answer choice that is most strongly bolstered by specific facts mentioned in the passage.

Answer Choices

A

Fixating on how to achieve a goal makes the plan less feasible

Incorrect: Out of Context

The author does mention feasibility of a plan and fixation on the how aspect but does not draw a cause and effect relationship between the two in terms of how 

B

Planning can be more effective in certain circumstances

Correct

This can be inferred from last paragraph - Accordingly the authors conclude that planning is more effective when people plan with the complete understanding of “why”.    

C

A good strategy is one that always accounts for every possible opportunity available to achieve a particular goal

Incorrect: Inconsistent

The study’s authors suggest that a strategy that takes advantage of out-of-plan opportunities can be more effective than the one that fixates itself on the original plan. However, by no means do the authors suggest that one has to take in to account EVERY possible opportunity available.

D

People who want to save money get fixated on little details and lose sight of the big picture

Incorrect: Out of Context

This is a generalized statement, not supported by the passage. The whole money scenario has been used as an example and does not reflect on all people wanting to save money.

E

Out of all the aspects of a plan, the why aspect is the most important to achieve the desired goal.

Incorrect: Inconsistent

The authors certainly suggest that the why of a goal is more important than the how in terms of achieving a goal; however, they do not say that it is the MOST important aspect.

QUESTION: 9

For once, the whys are turning out to be more important than the hows. A study shows that consumers who become fixated on how to achieve a goal probably face more difficulty in achieving their aims than people who think abstractly about why they want to do something. The authors of the study conducted four experiments to examine consumer behavior when it came to the goal of saving money. In one such experiment, some people were asked to make a specific plan to save money, whereas others were not asked to plan. Then some people were asked to focus on why they wanted to save money. Later on all participants were given the opportunity to buy candy. Subjects who were thinking concretely and formed a specific plan were less able to avoid the candy purchase than those who had not formed a plan at all.

 To elucidate the results, the authors cite the instance of person who wants to save money and hence makes a plan for achieving this goal. This person plans to save money by purchasing fewer clothing items at the mall. On investigating how this plan influences the person's response to other money-saving opportunities, for example, would the person be more likely to order a cheaper meal at a restaurant, avoid making an impulse purchase, or combine errands to save money on gas etc., the authors found that when people focus on concrete aspects of how they want to achieve goals, they become more closed-minded and consequently less likely to take advantage of opportunities that fall outside their plans. In contrast, people who focus on the why aspect are more likely to consider out-of-plan opportunities to achieve their goals.

Furthermore, in the same experiment, the group that performed the best was the one that was asked to focus on the “why” and had formed a plan implicitly.   Accordingly the authors conclude that planning is more effective when people plan with the complete understanding of “why”.    They suggest that this strategy is particularly effective when the original plan turns out to be unrealistic in terms of feasibility or when other goal-directed activities become available.

Through the second paragraph, the author of the passage intends to

Solution:

Passage Analysis

Summary and Main Point

This is a Function question. 

Let’s take a look at the individual paragraph summary to determine the function of the second paragraph. Per our analysis, through the second paragraph the author explains the results of the study indicated in the first paragraph.  

Answer Choices

A

to describe a new aspect of the study.

Incorrect: Inconsistent


The author of the passage does not propose a new aspect of the study. Notice that the author begins second paragraph with "To elucidate their point,...". This clearly indicates that the author will continue to talk about the aspects covered in first paragraph.

B

to present an explanation.

Correct 

This choice matches the pre-thinking analysis.

C

to evaluate the merits of one strategy while discussing the demerits of another.

Incorrect: Out of Scope

The author does not get involved in any kind of discussion or evaluation of the strategies. There is no opinion given from the author’s side. It’s the study’s authors’ take on different strategies that is presented in this paragraph.

D

to generate awareness about a particular aspect of consumer psychology.

Incorrect: Out of Scope

Once again, the author is merely presenting information and does not make any effort to consciously use this information for any cause. 

E

to discuss a feature of the study

Incorrect: Out of Scope

The author does not go into any kind of discussion in this paragraph. Also, the contents of the second paragraph do not enlist a feature of the study but an explanation for the observed results.

QUESTION: 10

For once, the whys are turning out to be more important than the hows. A study shows that consumers who become fixated on how to achieve a goal probably face more difficulty in achieving their aims than people who think abstractly about why they want to do something. The authors of the study conducted four experiments to examine consumer behavior when it came to the goal of saving money. In one such experiment, some people were asked to make a specific plan to save money, whereas others were not asked to plan. Then some people were asked to focus on why they wanted to save money. Later on all participants were given the opportunity to buy candy. Subjects who were thinking concretely and formed a specific plan were less able to avoid the candy purchase than those who had not formed a plan at all.

 To elucidate the results, the authors cite the instance of person who wants to save money and hence makes a plan for achieving this goal. This person plans to save money by purchasing fewer clothing items at the mall. On investigating how this plan influences the person's response to other money-saving opportunities, for example, would the person be more likely to order a cheaper meal at a restaurant, avoid making an impulse purchase, or combine errands to save money on gas etc., the authors found that when people focus on concrete aspects of how they want to achieve goals, they become more closed-minded and consequently less likely to take advantage of opportunities that fall outside their plans. In contrast, people who focus on the why aspect are more likely to consider out-of-plan opportunities to achieve their goals.

Furthermore, in the same experiment, the group that performed the best was the one that was asked to focus on the “why” and had formed a plan implicitly.   Accordingly the authors conclude that planning is more effective when people plan with the complete understanding of “why”.    They suggest that this strategy is particularly effective when the original plan turns out to be unrealistic in terms of feasibility or when other goal-directed activities become available.

Each of the following is a statement that is mentioned with respect to the study described in the passage EXCEPT

Solution:

Passage Analysis

Summary and Main Point

This is a Detail except question. Your job in this question is to rule out every answer choice that deals with a piece of information that is mentioned in the passage from the point of view of the study authors and choose the one that either goes against the given information or is unrelated to the contents of the passage. 

Answer Choices

A

The feasibility of a plan is dependent on whether a person has an understanding of why the plan is devised. 

Correct: Out of Context

This is a misinterpretation of the detail given at the end of the passage.  

Per the passage, the study’s authors indicate that if the original plan turns out to be not feasible, then those who understand the why aspect can leverage other opportunities to achieve the goal. This does not imply that those who understand this aspect are more likely to devise plans that are more feasible. 

B

In the experiment to save money, those who planned explicitly did not perform better than those who understood why but planned implicitly.

Incorrect: Stated in the passage

This detail is given in the first sentence of the final paragraph. Please refer to relevant section below:

Furthermore, in the same experiment, the group that performed the “best” was the one that was asked to focus on the “why” and had formed a plan implicitly.

Since this group performed best, it did perform better than the group that made explicit plans.

C

The strategy to keep an open mind and focus on the reason behind achieving the goal can help when alternate means of achieving the goal exist.

Incorrect: Stated in the passage

This detail is stated in the last sentence of the passage where the study’s authors suggest two situations in which their recommended strategy is particularly or especially successful. 

D

People focusing on the reason behind achieving a particular goal are likely to consider other goal-directed activities that may not have been a part of the original plan.

Incorrect: Stated in the passage

This information is given to us in the last sentence of the second paragraph. Please refer to the relevant section below:

In contrast, people who focus on the why aspect are more likely to consider out-of-plan opportunities to achieve their goals.

E

People fixated on the how aspect of a plan tend to ignore such opportunities that are not a part of their original plan.

Incorrect: Stated in the passage

This information is given to us in the second last sentence of the second paragraph:

they (how aspect people) become more closed-minded and consequently less likely to take advantage of opportunities that fall outside their plans.

QUESTION: 11

For once, the whys are turning out to be more important than the hows. A study shows that consumers who become fixated on how to achieve a goal probably face more difficulty in achieving their aims than people who think abstractly about why they want to do something. The authors of the study conducted four experiments to examine consumer behavior when it came to the goal of saving money. In one such experiment, some people were asked to make a specific plan to save money, whereas others were not asked to plan. Then some people were asked to focus on why they wanted to save money. Later on all participants were given the opportunity to buy candy. Subjects who were thinking concretely and formed a specific plan were less able to avoid the candy purchase than those who had not formed a plan at all.

 To elucidate the results, the authors cite the instance of person who wants to save money and hence makes a plan for achieving this goal. This person plans to save money by purchasing fewer clothing items at the mall. On investigating how this plan influences the person's response to other money-saving opportunities, for example, would the person be more likely to order a cheaper meal at a restaurant, avoid making an impulse purchase, or combine errands to save money on gas etc., the authors found that when people focus on concrete aspects of how they want to achieve goals, they become more closed-minded and consequently less likely to take advantage of opportunities that fall outside their plans. In contrast, people who focus on the why aspect are more likely to consider out-of-plan opportunities to achieve their goals.

Furthermore, in the same experiment, the group that performed the best was the one that was asked to focus on the “why” and had formed a plan implicitly.   Accordingly the authors conclude that planning is more effective when people plan with the complete understanding of “why”.    They suggest that this strategy is particularly effective when the original plan turns out to be unrealistic in terms of feasibility or when other goal-directed activities become available.

Which of the following is an example of a scenario in which the strategy suggested by the authors of the study in the last sentence of the passage would be most effective?

Solution:

Passage Analysis

Summary and Main Point

This is an Inference question. More specifically, it can be categorized as an “Application” question. You are required to take your understanding of the circumstances described by the study authors as ideal for the prescribed strategy to be effective and apply it to each of the situations mentioned below to evaluate which one fits the bill. The two situations described as especially conducive to the effectiveness of the strategy are:

(1)  when the original plan turns out to be unrealistic in terms of feasibility or

(2)  when other goal-directed activities become available

Answer Choices

A

The consumer is not able to determine the reason behind the pursuit of the goal.

Incorrect: Out of Scope

Not knowing why one wants to achieve a goal does not fall in either of the two situations described in the passage.

B

The consumer is not able to pursue the desired goal because of reasons not unrelated to the lack of out of plan goal-directed activities.

Incorrect: Out of Context

The out of plan goal-directed activities only come in to the picture as effective alternatives to achieving the desired goal and  therefore, their lack, by no means, indicates that the original plan is not feasible. 

C

The consumer realizes that the plan is not clear as the definition of the goal is not clear. 

Incorrect: Out of Scope

Realizing that the definition of the goal is not clear will work neither for the original plan and nor for the strategy prescribed by the study’s authors. Hence, this too doesn’t fall in the two situations described in the passage.

D

The consumer is able to perceive issues related to practicality of the plan.  

Correct

This choice describes a circumstance in which the consumer is able to perceive a problem with the practicality or feasibility of the plan. Hence, it matches the first circumstance described in the passage and in our pre-thinking.

E

The original plan becomes less attractive to the consumer as he/she moves closer to the desired goal.

Incorrect: Out of Scope

This choice too fails to describe a circumstance that falls in either of the two situations described in the passage. Finding the original plan less attractive for reasons other than feasibility issues or availability of other goal-directed activities is beyond the scope of the circumstances described. 

QUESTION: 12

Irrespective of the general state of the economy, paying less for the same thing appeals to most consumers, who seem to have an intuitive dislike for inflation. But much as we may like to pay less, a sustained decline in prices, deflation, may not be in our best interests. Deflation, in fact, is considered to be a bigger evil than inflation, and evokes strong action by policymakers who would try everything possible to prop up prices. Deflation often results from a slowdown in which reduction in demand vis-à-vis supply causes prices to dip. With a sharp decline in prices, consumers tend to postpone purchases in the belief that prices will head further lower. This adds to the pressure on businesses, which in addition to a fall in prices also see an accumulation of inventory. Production cuts are hence resorted to, resulting in factory closures and consequent layoffs or salary cuts. With unemployment increasing, income levels in the economy fall, leading to further cuts in consumer spending and more pressure on prices. A vicious cycle emerges; the cascade effect is felt across sectors; and the economy goes into defeatist mode.

To prevent deflations and to tackle the downward spiral caused by them, governments resort to large-scale spending, undertaking massive projects to increase employment, incomes, and prices and pumping in huge sums of money to propel demand. For instance, in the aftermath of the financial market crash in 2008, the US government undertook big-ticket stimulus measures and QE (quantitative easing) to revive the economy.

However, not all dips in prices are bad. A fall in prices of goods and services due to technological innovations and increased competition could actually benefit both the consumers and the producers. Such a situation is very different from deflation, which affects prices across the economy on a sustained basis (mainly due to decreasing demand or liquidity problems) and which should indeed be considered a red flag.

Which of the following describes the function of the final paragraph?

Solution:

Passage Analysis

Summary and Main Point

 

This is a Function question. Let’s refer to the summary and main point section to determine how the final paragraph acts within the structure of the entire passage. The last paragraph brings forth a consideration while differentiating deflation from another kind of price dip. The author does so to add to our understanding of the concept of deflation.

Answer Choices

A

To raise a consideration to add to the understanding of a phenomenon

Correct

As discussed in the pre-thinking, the function stated in this choice is indeed the purpose of the final paragraph.

B

To differentiate between different kinds of situations that are mistaken for one another

Incorrect: Irrelevant

First of all, there is no given information to infer that the given two situations are mistaken for each other. Second of all, the author does differentiate between the two situations but that is done in order to make us understand deflation a bit better. 

C

To introduce a discussion on an aspect related to a phenomenon explained earlier in detail 

Incorrect: Irrelevant

The phenomenon discussed in the earlier part of paragraph is deflation.  The aspect being discussed in third paragraph is “dip in prices”. But this aspect is NOT related to deflation.  

D

To give information that is not conflicting with the definition of a phenomenon discussed earlier

Incorrect: Irrelevant

The information given about the “not necessarily bad price dip” indeed doesn’t conflict with the discussion earlier but the purpose of the author is not to just give this information. It is to give this information to make the reader understand a concept better.

E

To warn against a common generalization  

Incorrect: Out Of Scope

The purpose of the author could have been to warn the reader mistaking every price dip as deflation. However, there is no given information to conclude that such a generalization is common.

QUESTION: 13

Irrespective of the general state of the economy, paying less for the same thing appeals to most consumers, who seem to have an intuitive dislike for inflation. But much as we may like to pay less, a sustained decline in prices, deflation, may not be in our best interests. Deflation, in fact, is considered to be a bigger evil than inflation, and evokes strong action by policymakers who would try everything possible to prop up prices. Deflation often results from a slowdown in which reduction in demand vis-à-vis supply causes prices to dip. With a sharp decline in prices, consumers tend to postpone purchases in the belief that prices will head further lower. This adds to the pressure on businesses, which in addition to a fall in prices also see an accumulation of inventory. Production cuts are hence resorted to, resulting in factory closures and consequent layoffs or salary cuts. With unemployment increasing, income levels in the economy fall, leading to further cuts in consumer spending and more pressure on prices. A vicious cycle emerges; the cascade effect is felt across sectors; and the economy goes into defeatist mode.

To prevent deflations and to tackle the downward spiral caused by them, governments resort to large-scale spending, undertaking massive projects to increase employment, incomes, and prices and pumping in huge sums of money to propel demand. For instance, in the aftermath of the financial market crash in 2008, the US government undertook big-ticket stimulus measures and QE (quantitative easing) to revive the economy.

However, not all dips in prices are bad. A fall in prices of goods and services due to technological innovations and increased competition could actually benefit both the consumers and the producers. Such a situation is very different from deflation, which affects prices across the economy on a sustained basis (mainly due to decreasing demand or liquidity problems) and which should indeed be considered a red flag.

Which of the following statements would the author most likely agree with?

Solution:

Passage Analysis

Summary and Main Point

 

 

This is an Inference question. Since this is a general inference question, we cannot pre-think on specific lines. Nevertheless, we must keep in mind that four out of the five given answer choices will not follow from what is stated in the passage; these answer choices are INCORRECT. Select the answer choice that is bolstered by the specific facts mentioned in the passage. 

Answer Choices

A

Although inflation can be beneficial for the economy deflation cannot be.

Incorrect: Out Of Scope

There is no given information on this kind of comparative analysis. While pitching them against each other, the author states that deflation is considered a bigger evil than inflation, meaning that the harmful effects of deflation are considered worse than those of inflation. However, this is not sufficient information to conclude that inflation can be beneficial.

B

The decision to buy a product later in the hope of benefitting from a further price reduction is part of the cyclical chain of events that breeds deflation.

Correct

The author mentions clearly in the first paragraph that the decision to delay purchasing adds to the pressure faced by producers that in turn leads to unemployment and even less demand for goods, decreasing prices even further. Hence, we can infer the statement given in choice B.

C

Deflation has little in common with dips in prices that are not substantially caused by decreasing demand.

Incorrect: Out Of Scope

In the last paragraph, the author differentiates between a dip caused by factors other than decreasing demand and deflation. On the basis of this information, we cannot conclude that deflation does not have a lot in common with dips not SUBSTANTIALLY caused by decreasing demand. 

D

Production cuts undertaken due to accumulated inventory help producers deal with an excess supply, leading to a momentary increase in prices. 

Incorrect: Out Of Scope

The author states in the first paragraph that the producers resort to production cuts since they have enough stock in their inventory (because of lack of sufficient demand). However, nowhere is it indicated or given that these cuts lead to any kind of increase in prices. In fact, if anything, we are told that the unemployment caused by these cuts leads to further decrease in prices.

E

Whenever supply exceeds current demand, deflation occurs. 

Incorrect: Out Of Scope

We are told that deflation often occurs in a slowdown when the demand is less compared to the supply. However, this statement does not mean that every time the demand is less, there will be deflation.

QUESTION: 14

Irrespective of the general state of the economy, paying less for the same thing appeals to most consumers, who seem to have an intuitive dislike for inflation. But much as we may like to pay less, a sustained decline in prices, deflation, may not be in our best interests. Deflation, in fact, is considered to be a bigger evil than inflation, and evokes strong action by policymakers who would try everything possible to prop up prices. Deflation often results from a slowdown in which reduction in demand vis-à-vis supply causes prices to dip. With a sharp decline in prices, consumers tend to postpone purchases in the belief that prices will head further lower. This adds to the pressure on businesses, which in addition to a fall in prices also see an accumulation of inventory. Production cuts are hence resorted to, resulting in factory closures and consequent layoffs or salary cuts. With unemployment increasing, income levels in the economy fall, leading to further cuts in consumer spending and more pressure on prices. A vicious cycle emerges; the cascade effect is felt across sectors; and the economy goes into defeatist mode.

To prevent deflations and to tackle the downward spiral caused by them, governments resort to large-scale spending, undertaking massive projects to increase employment, incomes, and prices and pumping in huge sums of money to propel demand. For instance, in the aftermath of the financial market crash in 2008, the US government undertook big-ticket stimulus measures and QE (quantitative easing) to revive the economy.

However, not all dips in prices are bad. A fall in prices of goods and services due to technological innovations and increased competition could actually benefit both the consumers and the producers. Such a situation is very different from deflation, which affects prices across the economy on a sustained basis (mainly due to decreasing demand or liquidity problems) and which should indeed be considered a red flag.

As per the passage, which of the following would most likely be considered a dip in prices beneficial to both the consumer and the producer?

Solution:

Passage Analysis

Summary and Main Point

 

 

 

This is an Application based question. We need to go back to the relevant section of the passage and read the description of the dip in prices that the author states is not necessarily bad. The author says that:

A fall in prices of goods and services due to technological innovations and increased competition could actually benefit both the consumers and the producers.

So, as we can see, a dip in prices that caused by not a consistent reduction in demand but by progressive factors such technological breakthroughs and increased competition might actually be good. Keeping this information in mind, we need to evaluate the following answer choices.

Answer Choices

A

Because of a breakthrough in diamond mining, the price of the diamond dips, with it becoming affordable for more people but losing its unique selling appeal as a luxury item.

Incorrect: Opposite

We are told that though the diamond becomes cheaper, it loses its unique selling appeal as a luxury product. So, it is possible that many people may not want to buy it because it is not considered luxurious anymore. In such a situation, the dip in price benefits neither the consumer nor the producer. 

B

Because of the cancellation of an order, the producer reduces the price of the goods in stock considerably and sells them to another buyer. 

Incorrect: Partial Scope

Although the buyer who bought the product at a cheaper price might have benefitted from the deal, the producer had to compromise on its profits because of a significant reduction in price. So, the producer, in all likelihood, did not benefit from the situation.

C

Because of a change in policy, producers can now procure raw materials for producing garments at cheaper prices from nearby countries and hence save on their cost of production.

Incorrect: Out Of Scope

Although we are told that the producers will realize savings on their cost of production, we are not told whether they lower their prices because of these savings.  Hence the benefit to the consumer is uncertain.

D

Because of an increasing competition from cheaply produced and imported goods, the local producers reduce the prices of their goods to sell off their existing stock at initiate production cuts.

Incorrect: Opposite

Although the cause of price dip is not a reduction in demand, the effect is production cuts- something that is listed in the passage as a cause for perpetuating deflation.  Thus this scenario does not benefit anyone.

E

Because of a new technology, the manufacturers of personal computers are able to reduce their cost of production and pass these savings to the consumers as well by lowering the prices.

Correct

In this situation the benefits of the new technology are reaped both by the producer and by the consumer. Here’s how:

Producer = lower costs due to new technology

Consumer = lower price because of lower costs

QUESTION: 15

Irrespective of the general state of the economy, paying less for the same thing appeals to most consumers, who seem to have an intuitive dislike for inflation. But much as we may like to pay less, a sustained decline in prices, deflation, may not be in our best interests. Deflation, in fact, is considered to be a bigger evil than inflation, and evokes strong action by policymakers who would try everything possible to prop up prices. Deflation often results from a slowdown in which reduction in demand vis-à-vis supply causes prices to dip. With a sharp decline in prices, consumers tend to postpone purchases in the belief that prices will head further lower. This adds to the pressure on businesses, which in addition to a fall in prices also see an accumulation of inventory. Production cuts are hence resorted to, resulting in factory closures and consequent layoffs or salary cuts. With unemployment increasing, income levels in the economy fall, leading to further cuts in consumer spending and more pressure on prices. A vicious cycle emerges; the cascade effect is felt across sectors; and the economy goes into defeatist mode.

To prevent deflations and to tackle the downward spiral caused by them, governments resort to large-scale spending, undertaking massive projects to increase employment, incomes, and prices and pumping in huge sums of money to propel demand. For instance, in the aftermath of the financial market crash in 2008, the US government undertook big-ticket stimulus measures and QE (quantitative easing) to revive the economy.

However, not all dips in prices are bad. A fall in prices of goods and services due to technological innovations and increased competition could actually benefit both the consumers and the producers. Such a situation is very different from deflation, which affects prices across the economy on a sustained basis (mainly due to decreasing demand or liquidity problems) and which should indeed be considered a red flag.

Which of the following is mentioned in the passage?

Solution:

Passage Analysis

Summary and Main Point

 

 

 

 

This is a Detail question. Keep crossing out answer choices that are not explicitly stated in the passage and choose the one for which you can directly refer to a portion in the passage.

Answer Choices

A

Most people have a natural dislike for deflation.

Incorrect: Opposite

We are told in the first paragraph that most people have a natural dislike towards inflation and they actually like lower/dipping prices.

B

Those people who lose their jobs in deflation keep postponing their purchasing decisions in the hope that prices will decrease further.

Incorrect: Out Of Scope

The author does mention the decision to postpone spending and he/she also mentions job cuts due to deflation. However, the author does not relate the two. 

C

Large-scale spending by the government is one of the most effective ways to tackle deflation.

Incorrect: Out Of Scope

Large-scale is mentioned as one of the ways to prevent and tackle deflation; however, there is no given information on its being one of the most effective ways.

D

The financial market crash of 2008 was caused by deflation in the economy.

Incorrect: Out Of Scope

The author talks about the crash with reference to the measures undertaken by the government to tackle deflation in the aftermath of the crash. It does not state that the crash itself was caused by deflation.

E

The effect of sustained price rise is considered less harmful than that of sustained price fall.

Correct

This information is given to us in the first paragraph. The author states that:

Deflation, in fact, is considered to be a bigger evil than inflation,

Deflation = sustained price fall

Inflation = sustained price rise

QUESTION: 16

The Grameen Bank, founded in Bangladesh by Nobel Peace Prize Laureate, Dr. Muhammad Yunus, who is also credited for giving life to the concept of microcredit/microfinance, is one of the most popular models of social business, a business that operates primarily for addressing social needs and not for-profit. Based on the concept of microfinance, Grameen provides microloans, small loans, to the poor and those living beyond the reach of traditional finance, in order to promote income generating activities, avoiding the more traditional form of poverty alleviation - aid donations. The original focus of the Grameen Bank was on rural people with no credit history and no collateral. However, the bank rapidly expanded, giving the illusion of a win-win situation that yielded both profits for Grameen Bank and huge improvements in development for Bangladesh. Private, for-profit organizations around the world wrongly judged the situation, thinking that they could first and foremost profit from this type of venture while developing the country in the process. This view was indeed tainted since Grameen’s goal was development and any profits were an added bonus. Because of these wrong expectations, the Grameen model has achieved limited success in countries other than those in South-East Asia, though the concept of microfinance has had better luck, with many countries now running profitable microfinance institutions that typically charge considerably higher interest rates for zero collateral loans than Grameen ever would. 

Which of the following best captures the main idea of the passage?

Solution:

Passage Analysis

Summary and Main Point   

 

 

This is a Main Idea question. The correct choice must be broad enough to encompass the various sections of the passage but specific enough to not veer outside the scope of the passage. Also, before going in to the answer choices, you must come to an approximate idea of what the author wants to convey through the passage. In fact, as soon as you finish reading the passage, you should have a fair idea of the primary purpose/main idea of the passage. Let’s visit the individual summary sections to arrive at the same. As seen in the passage analysis and summary and main point section, in the first section of the passage, the author briefly explains the concept of Grameen Bank as a model of social business and microfinance. In the second section the author talks about the success of Grameen Bank and how that success was misinterpreted and this misinterpretation ultimately led to its limited success in other countries. Therefore, we can see that the main idea of the passage is to explain a concept and discuss the reason behind its limited success in certain countries.

With this understanding in mind, let’s evaluate the answer choices.

Answer Choices

A

To explain a model and a reason behind its limited success in some countries

Correct

This choice matches our pre-thinking.

B

To show how the focus of a concept changed as it achieved success with time 

Incorrect: Partial Scope

Although the author does mention that the original focus of GB was on rural people and that this focus expanded with its success, this aspect is not the main idea of the passage. Therefore, this choice is too narrow in its scope.

C

To explain the reason behind the success of a concept in South East Asian countries

Incorrect: Out of Scope

The author never delves in to the reason behind the stated success of GB in SE Asian countries.

D

To highlight how a model is a not very ideal one for-profit oriented microfinance oriented organizations

Incorrect: Out of Context

The discussion of the for-profit microfinance organization who failed to achieve success with GB is with relevance to how these institutions misunderstood the success of GB and not to highlight how GB is not suitable for such organizations.

E

To discuss the various models of microfinance operational in countries within and outside South East Asia

Incorrect: Out of Context

Yes, the author does discuss GB, a model of microfinance in South East Asian countries, and mentions other microfinance models operational in various countries; however, this discussion is not a part of a broader discussion on microfinance. It is with respect to discussing GB as a model of social business and microfinance.

QUESTION: 17

The Grameen Bank, founded in Bangladesh by Nobel Peace Prize Laureate, Dr. Muhammad Yunus, who is also credited for giving life to the concept of microcredit/microfinance, is one of the most popular models of social business, a business that operates primarily for addressing social needs and not for-profit. Based on the concept of microfinance, Grameen provides microloans, small loans, to the poor and those living beyond the reach of traditional finance, in order to promote income generating activities, avoiding the more traditional form of poverty alleviation - aid donations. The original focus of the Grameen Bank was on rural people with no credit history and no collateral. However, the bank rapidly expanded, giving the illusion of a win-win situation that yielded both profits for Grameen Bank and huge improvements in development for Bangladesh. Private, for-profit organizations around the world wrongly judged the situation, thinking that they could first and foremost profit from this type of venture while developing the country in the process. This view was indeed tainted since Grameen’s goal was development and any profits were an added bonus. Because of these wrong expectations, the Grameen model has achieved limited success in countries other than those in South-East Asia, though the concept of microfinance has had better luck, with many countries now running profitable microfinance institutions that typically charge considerably higher interest rates for zero collateral loans than Grameen ever would. 

Which one of the following statements can be inferred about the for-profit microfinance institutions?

Solution:

Passage Analysis

Summary and Main Point   

 

 

This is a Specific Inference question. We need to go back to refresh our understanding of the referred entity and look for an answer choice that matches our understanding. We know from the passage that these for-profit institutions:

  1. misunderstood the GB model (profit first, development on the side)
  2. Private, for-profit organizations around the world wrongly judged the situation, thinking that they could first and foremost profit from this type of venture while developing the country in the process.
  3. (some of them) charge significantly more interest rate on zero collateral loans than Grameen would
  4. profitable microfinance institutions that typically charge considerably higher interest rates for zero collateral loans than Grameen ever would.

 

With this understanding in mind, let’s evaluate the answer choices.

Answer Choices

A

The coexistence of profit and development under the Grameen model was not interpreted correctly by such institutions

Correct

This choice matches the first point in our pre-thinking.  

B

They are profitable models of social business.

Incorrect: Opposite

The passage clearly states that a social business is one whose main focus is development and not profit. And we know that these for-profit organizations are first concerned with profit. So this choice goes against our understanding of the information given in the passage.

C

They were responsible for the complete failure of Grameen as a model of microfinance.

Incorrect: Inconsistent

Yes, these organizations misunderstood the GB model and hence were responsible for its failure in countries outside SE Asia. However, the GB model was very successful in SE Asia. But this choice states that GB model was a complete failure.

D

Such institutions are not operational in Bangladesh.

Incorrect: Out of Scope

There is no given information to conclude that these institutions are only operational in countries outside SE Asia.

E

Such institutions are not likely to offer loans to applicants who do not have any collateral security to offer.

Incorrect: Opposite

This information goes against the information given in the passage that states that such institutions charge high interest rates on loans given against zero collateral security. 

QUESTION: 18

The Grameen Bank, founded in Bangladesh by Nobel Peace Prize Laureate, Dr. Muhammad Yunus, who is also credited for giving life to the concept of microcredit/microfinance, is one of the most popular models of social business, a business that operates primarily for addressing social needs and not for-profit. Based on the concept of microfinance, Grameen provides microloans, small loans, to the poor and those living beyond the reach of traditional finance, in order to promote income generating activities, avoiding the more traditional form of poverty alleviation - aid donations. The original focus of the Grameen Bank was on rural people with no credit history and no collateral. However, the bank rapidly expanded, giving the illusion of a win-win situation that yielded both profits for Grameen Bank and huge improvements in development for Bangladesh. Private, for-profit organizations around the world wrongly judged the situation, thinking that they could first and foremost profit from this type of venture while developing the country in the process. This view was indeed tainted since Grameen’s goal was development and any profits were an added bonus. Because of these wrong expectations, the Grameen model has achieved limited success in countries other than those in South-East Asia, though the concept of microfinance has had better luck, with many countries now running profitable microfinance institutions that typically charge considerably higher interest rates for zero collateral loans than Grameen ever would. 

According to the passage, which one of the following statements is true?

Solution:

Passage Analysis

Summary and Main Point   

 

 

Since this is an open ended Detail question we cannot pre-think on specific terms. However, we must keep in mind that the correct answer will directly flow from what’s explicitly stated in the passage. 

 

Answer Choices

A

When Grameen started functioning, there were fewer people in the urban areas of Bangladesh who applied for a loan from it than there were when it became more successful

Incorrect: Out of Scope

We are only told that the focus of GB initially were the rural people and that this changed as it expanded. However, we are given no information about the actual number of people applying for loans from GB from the urban areas.

B

There is a limited scope of Grameen’s success in countries outside South East Asia.

Incorrect: Out of Context

The actual scope of the GB model is never discussed in the passage. We are told that it failed in countries outside SE Asia because of a misunderstanding of its model.

C

Microfinance as a concept is more successful for for-profit oriented microfinance institutions than for Grameen.

Incorrect: Inconsistent

We are clearly told that Grameen, as a model of microfinance, was hugely successful in Bangladesh and that the concept of microfinance is utilized by for-profit institution as well. However, there is no comparison given with respect to which kind of intuition benefits more from it.

D

Granting a sum of money as charity to the poor is not a part of Grameen’s operations.

Correct

This information is given to us in the following section:

… Grameen provides microloans, small loans, to the poor and those living beyond the reach of traditional finance, in order to promote income generating activities, avoiding the more traditional form of poverty alleviation - aid donations.

E

Institutions offering traditional loans charge much higher interest rates than Grameen does.

Incorrect: Out of Scope

There is no such comparison given between the interest rates charged by traditional institutions and those charged by Grameen, though we are given a comparison in this line between Grameen and for-profit microfinance institutions. 

QUESTION: 19

The poverty line, also known as the poverty threshold, is defined as the minimum level of income that is necessary for the people of a specific nation. The poverty line of a country is calculated by identifying the total amount of necessary expenses that an average adult requires over the course of one year, with the main such expense usually being house rent. Additionally, this calculation also typically includes the basic expenses of food and clothing. This measure of minimum income required is purely quantitative and does not estimate either the specific needs of people from different low-income groups or the different ways in which low-income groups experience poverty in different countries. The solely quantitative basis of calculating the minimum required income, therefore, may in fact lead to either the overestimation or the underestimation of the number of people who actually live under the poverty line in a given country. Another reason that renders the poverty line short of being a very reliable indicator of actual poverty levels is that certain nations, usually developed ones, with strong welfare systems fail to account for ‘in-kind’ transfers when calculating the poverty threshold.  Such calculations do not regard the benefits received from antipoverty programs such as food stamps, housing assistance, etc. as income, thereby presenting a distorted picture of the level of poverty in the nation.

Which of the following is mentioned in the passage?

Solution:

Passage Analysis

Summary and Main Point

This is a Detail question. While selecting the correct answer, you should be able to back up your choice by a detail explicitly mentioned in the passage.

Answer Choices

A

A qualitative basis for calculating the minimum income required would not result in overestimating the number of people living below the poverty line.

Incorrect: Out of Scope

The author talks only about the impact of a calculation done with solely quantitative parameters; there is no mention of the impact of qualitative parameters.

B

Quantitative parameters are poor indicators of poverty.

Incorrect: Inconsistent

The author says that exclusive focus on quantitative parameters is a shortcoming and not that such parameters are poor indicators of poverty.

C

The cost of the basic requirements of housing, food and clothing is not the same in any two economies.

Incorrect: Inconsistent

The author states that such costs may vastly differ in different countries and not that no two economies can have parity in such costs.

D

The calculation of poverty in developed nations is affected by their misnaming of antipoverty programs.

Incorrect: Inconsistent

It is not the naming of such programs but instead the exclusion of the benefits received from such programs in the calculation of poverty threshold that affects the calculation of poverty.

E

The quantitative basis for calculating the poverty line excludes estimation of the specific needs of people from various low-income groups.

Correct

This information is given to us in the following section of the passage:

This measure of minimum income required is purely quantitative, and does not estimate either the specific needs of people from different low-income groups…

 

QUESTION: 20

Should taxpayers pay to read the results of public funded research or do they have the right to those. This issue is the center of hotly contested debate in the House of Representatives as a part of the Research Works Act.  The Research Works Act would forbid the National Institute of Health to require, as it now does, that its grantees provide copies of the papers they publish in peer-reviewed journals to the library. If the bill passes, to read the results of federally funded research, most Americans would have to buy access to individual articles at a cost of $15 or $30 apiece, making citizens pay for research already funded by them.

Publishers of journals such as Cell, Science, and The New England Journal of Medicine, who are backing the bill, argue that they add value to the finished product and that requiring them to provide free access to journal articles within a year of publication denies them their fair compensation and makes it difficult for them to generate profits comparable to the profits in the industry.  Furthermore they claim that while the research may be publically funded, the journals are not, claiming that they add significant value in the peer review process that makes the published articles worthwhile.

But in fact, these journals receive billions of dollars in subscription payments, a good portion of their revenue today that is derived largely from public funds. Moreover, even the peer review process, which the journals claim is their primary value add, is funded by public funds. The researchers who volunteer their time to review their peers’ work come primarily from universities and research organizations that are funded by taxpayers’ dollars.

Rather than rolling back public access, Congress should move to enshrine a simple principle in United States law: if taxpayers paid for it, they own it. This is already the case for scientific papers published by researchers at the N.I.H. campus in Bethesda, Md., whose work has been explicitly excluded from copyright protection since 1976 because it was funded by public. It would be easy to extend this coverage to all works funded by the federal government.

The primary purpose of the passage is to

Solution:

Answer Choices

A

Demonstrate how the publishing industry is misusing the time of congress for their own financial benefit.

The author does not make any claim of “misuse of time”.

B

Illustrate a moral dilemma facing the House of Representatives.

There is no mention of any moral values of dilemma.

C

Evaluate the pros and cons of passing the Research Works Act.

Passage only discusses pros.  It does not discuss cons.  It negates the pros.

D

Discuss and disprove the claims put forth by the backers of Research Works Act.

This is the primary purpose of the author.

E

Advocate all publically funded research to be made open source. 

There is no mention of “open source”.  Note that available to public does not mean “open source”.

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