Many economists believe that high rate of business savings

[rx_11]

Many economists believe that high rate of business savings in the United States is a necessary precursor to investment, because business savings, as opposed to personal savings, comprise almost three-quarters of the national savings rate, and the national savings rate heavily influences the overall rate of business investment. These economists further postulate that real interest rates-the difference between the rates charged by lenders and the inflation rates-will be low when national savings exceed business investment (creating a savings surplus),and high when national savings fall below the level of business investment(creating a savings deficit ). However, during the 1960's real interest rates were often higher when the national savings surplus was large. Counter-intuitive behavior also occurred when real interest rates skyrocketed from2 percent in 1980 to 7 percent in 1982, even though national savings and investments were roughly equal throughout the period. Clearly, real interest rates respond to influences other than the savings/investment nexus. Indeed, real interest rates may themselves influence swings in the savings and investment rates. As real interest rates shot up after 1979, foreign investors poured capital into the United States, the price of domestic goods increased prohibitively abroad, and the price of foreign-made goods became lower in the United States. As a result, domestic economic activity and the ability of businesses to save and invest were restrained.

1. The passage is primarily concerned with

a. contrasting trends in two historical periods
b. presenting evidence that calls into question certain beliefs
c. explaining the reasons for a common phenomenon
d. criticizing evidence offered in support of a well-respected belief
e. comparing conflicting interpretations of a theory

OA is B


2. The author of the passage would be most likely to agree with which of the following statements regarding the economists mentioned in line 1?

a. Their beliefs are contradicted by certain economic phenomena that occurred in the United States during the 1960's and the 1980's.
b. Their theory fails to predict under what circumstances the prices of foreign and domestic goods are likely to increase.
c. They incorrectly identify the factors other than savings and investment rates that affect real interest rates.
d. Their belief is valid only for the United States economy and not necessarily for other national economies.
e. They overestimate the impact of the real interest rate on the national savings and investment rates.

OA is A




Hi, everyone, this is a prep question.

This passage I think is not hard. But I can't figure out which one should be the correct answer in the FIRST question. I think BCD are all partially correct because in my opinion, the best answer should be "the passage dispute a certain view, and give an alternate theory." I think BCD are all particially correct. They just summarize one part of the passage.

Anyone can help me ? Thanks very much.

[shovan85]

Many economists believe that high rate of business savings in the United States is a necessary precursor to investment, because business savings, as opposed to personal savings, comprise almost three-quarters of the national savings rate, and the national savings rate heavily influences the overall rate of business investment.

One idea has been stated as per the economists

These economists further postulate that real interest rates-the difference between the rates charged by lenders and the inflation rates-will be low when national savings exceed business investment (creating a savings surplus),and high when national savings fall below the level of business investment(creating a savings deficit ).

That idea has been further supported by economists

However, during the 1960's real interest rates were often higher when the national savings surplus was large.Counter-intuitive behavior also occurred when real interest rates skyrocketed from2 percent in 1980 to 7 percent in 1982, even though national savings and investments were roughly equal throughout the period.

Contrasting idea or unsupported thoughts are presented

Clearly, real interest rates respond to influences other than the savings/investment nexus. Indeed, real interest rates may themselves influence swings in the savings and investment rates.

First idea could partially hold true

As real interest rates shot up after 1979, foreign investors poured capital into the United States, the price of domestic goods increased prohibitively abroad, and the price of foreign-made goods became lower in the United States. As a result, domestic economic activity and the ability of businesses to save and invest were restrained.

1. The passage is primarily concerned with

a. contrasting trends in two historical periods : There is no contrast stated in trends. One period is 1960 when the interest rate went high and the same trend is followed till 1982. No second historical period is found.

b. presenting evidence that calls into question certain beliefs : Certain beliefs have been presented in the first two lines of the passage. To show that belief may not be true an example of a time-period is shown with equal amount of savings. Savings may influence real interest rate has been stated in the passage. Thus, it could be the best answer as the different aspects of the statement prevails structurally throughout the passage.

c. explaining the reasons for a common phenomenon : There is vague explanation for a common phenomenon. I think the common phenomenon is "Economists idea is not sustaining". But in the passage the failures of the sustenance has been stated not the reasons for the failure. Even in the passage you can see it has been mentioned "Clearly, real interest rates respond to influences other than the savings/investment nexus." but no mention of the reasons.

d. criticizing evidence offered in support of a well-respected belief : The author is NEUTRAL in terms of tone of the passage. He has not criticized but provided the contrasting view that prevailed against the idea of economists in 1960s. The term "well-respected" is also a suspect. How can we say from the passage that the idea held by economists were well-respected?

e. comparing conflicting interpretations of a theory : Interpretations to the belief of economists can be conflicting but in the passage those are not COMPARED.