The New Yorker - 3 (News Based RC) | Verbal Ability (VA) & Reading Comprehension (RC) - CAT PDF Download

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Date: 17 November 2023

Passage

In the realm of economic forecasting, the past year has been a period of significant upheaval and surprise. A little over a year ago, a survey conducted by the Wall Street Journal, which included insights from more than seventy experts from academia, business, and Wall Street, painted a rather grim picture of the economic future. The consensus was clear: a recession seemed inevitable. The Federal Reserve's strategy of maintaining high interest rates to curb inflation was expected to lead to a contraction in the Gross Domestic Product (GDP) and a downturn in job growth. The prevailing sentiment among these experts was that the economy was on the brink of a slump, a necessary evil to bring down soaring inflation rates.
However, as the year unfolded, the predictions of these economists began to diverge significantly from reality. Contrary to the anticipated recession and job cuts, the economy demonstrated remarkable resilience. The Labor Department's reports were a testament to this unexpected turn of events. By October, consumer-price inflation had fallen to 3.2 percent, a notable reversal from the trends observed over the summer. This decline in inflation was not the only surprise; the economy also witnessed a surge in GDP growth and sustained job creation, starkly contrasting the forecasts of economic downturn.
The data from 2022 and the first three quarters of 2023 further underscored this unexpected economic buoyancy. GDP growth, the broadest measure of the economy’s output, exceeded expectations. In 2022, the economy grew at an annual rate of 1.9 percent. The following year, the growth rates for the first three quarters were even more encouraging, with the economy expanding at annualized rates of 2.2 percent, 2.1 percent, and a robust 4.9 percent, respectively. The job market, too, defied the gloomy predictions. In the first ten months of the year, non-farm employers added approximately 2.4 million jobs, keeping the unemployment rate comfortably below four percent. This robust job creation stood in stark contrast to the earlier forecasts of negative job growth.
Despite these positive indicators, there were still signs of consumer caution. Retail sales experienced a slight dip, and major retailers like Target and Home Depot reported a slowdown in big-ticket purchases. Yet, barring unforeseen financial calamities or significant geopolitical escalations, the economy seemed unlikely to experience a free fall. Other economic indicators, such as housing stats, remained strong, further reinforcing the narrative of an economy that was outperforming expectations.
This remarkable economic scenario led to the coining of the term 'immaculate disinflation.' Initially met with skepticism, this term came to represent the unique combination of strong growth, low unemployment, and falling inflation – a trifecta that had no recent historical precedent. Prominent economists and commentators, including Martin Wolf of the Financial Times and former Treasury Secretary Larry Summers, expressed their astonishment at this development. Summers, in particular, had previously asserted that a significant increase in unemployment would be necessary to rein in inflation, a prediction that did not materialize.
The Federal Reserve and its policymakers, too, were caught off guard by this turn of events. Their predictions at the end of 2022, which included modest GDP growth and a higher unemployment rate, were far off the mark. This discrepancy raised important questions about the nature of economic forecasting and the understanding of inflation dynamics. Some experts posited that the inflation spike might have been misinterpreted from the start, viewed more as a result of excessive demand rather than as a consequence of pandemic-era supply disruptions, which were now easing.
As the debate continues among economists, there remains a disconnect between these positive economic indicators and public perception. Opinion polls suggest that many Americans still view the economy negatively, influenced perhaps by persistent concerns over grocery prices and mortgage rates. Yet, in the face of these concerns, the economic data tells a story of a historic victory over inflation, a narrative that, despite its complexity, merits recognition and perhaps even a celebratory toast.

Q1:What was the consensus among economists a year ago regarding the US economy?
(a) Rapid economic growth
(b) A mild economic downturn
(c) An inevitable recession
(d) Stable inflation rates

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Q2:How did the actual economic outcomes of 2023 compare to the forecasts?
(a) They matched the forecasts accurately.
(b) The economy experienced higher inflation than expected.
(c) The economy showed unexpected resilience and growth.
(d) The job market collapsed as predicted.

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Q3: What does the term 'immaculate disinflation' refer to in the context of the passage?
(a) A strategy implemented by the Federal Reserve
(b) A unique economic condition combining growth, low unemployment, and falling inflation
(c) A theoretical economic model
(d) The process of rapid inflation followed by stabilization

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Q4: What is suggested about the nature of the inflation spike and economic forecasting?
(a) The inflation spike was accurately predicted by most economists.
(b) Economic forecasting is always reliable.
(c) The inflation spike may have been misunderstood, indicating a need to revisit economic theories.
(d) The Federal Reserve's policies had no impact on the inflation spike.

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