GMAT Reading Comprehension - With the Explosion of the Technology Industry in the Late 1990s

Reading Passage Question

With the explosion of the technology industry in the late 1990s, the US ushered in the so-called ―new economy.‖ Based largely on speculation and a ―cash in‖ mentality, the new economy bustled along until the bottom fell out and it came crashing back to earth. But what set the stage for this collapse to happen was put into motion years earlier.

The growth of productivity is defined as the rate of growth in product less the rate of growth in the labour used in production. Productivity can be affected by factors such as: amount of capital invested in production, methods used in production, educational or demographic composition of the labour force, business climate, global competition, and cost of environmental and safety regulations. Capital investment was booming in the U.S. in the post-1995 period. Furthermore, that part of capital invested in information technology, including computers, software, and communications equipment, rose to more than fifty times what it had been in 1975. Because of its high gross rate of return in improving methods of production, capital investment in information technology should have a particularly large impact on overall productivity.

For the past five years the big news for the U.S. economy has been a noticeable productivity growth spurt, which many have attributed to new information and communication technologies. The rate of growth in U.S. productivity had not been so high since the period extending from the end of World War II through the 1960s. In the early 1970s, productivity growth dropped suddenly. Apart from normal cyclical movements low productivity growth continued until the mid-1990s. Then, performance of the U.S. economy accelerated to a truly extraordinary level. From 1995 to 1999 real gross domestic product grew at an average rate of about 4 percent per year, and the rate of growth in labour productivity returned to the pre-1970 rate of increase.

The revolution in technology is, at least in some sense, a worldwide phenomenon. Therefore, one would expect the recent trend in the rate of growth in productivity in the U.S. to be shared by other developed countries. However, marked differences exist. Although the U.S. had the lowest rate of overall productivity growth in the 1981-95 period, in the post-1995 period the U.S. rate of productivity rose to third among the countries, behind only Ireland and Australia. In several other developed countries, including France, Italy, Japan, the United Kingdom, the Netherlands, and Spain, overall productivity growth slowed quite sharply.

The questions then arise: Why are these trends in productivity growth so different; and does this difference illuminate anything about the role of the new technologies? Regression analysis of the rate of growth in productivity in each of these countries in the late 1990s, both as a function of the country‘s share of spending devoted to information technology and as a function of its number of internet servers, reveals a positive correlation that passes the test for statistical significance. Therefore, with due deference to the problems of international comparison, the data appears to reinforce the view that utilization of the new technologies has been important in raising productivity in the U.S. in recent years.

“With the explosion of the technology industry in the late 1990s.”- is a GMAT reading comprehension passage with answers. Candidates need a strong knowledge of English GMAT reading comprehension.

This GMAT Reading Comprehension consists of 3 comprehension questions. The GMAT Reading Comprehension questions are designed for the purpose of testing candidates’ abilities in understanding, analyzing, and applying information or concepts. Candidates can actively prepare with the help of GMAT Reading Comprehension Practice Questions.

Solution and Explanation

1. According to the passage, a resurgence in productivity occurred in:

1. the U.S. in the late 1990s.
2. Ireland in the late 1990s.
3. developed countries other than the U.S. in the 1981-95 period.

1. I only
2. II only
3. III only
4. I, II, and III
5. I and II only

2. If the passage were to continue, the next topic the author would discuss would most probably be:

1. what factors caused the drop in the growth of U.S. productivity in the early 1970s.
2. what factors prevented the productivity growth spurt in the U.S. from continuing.
3. the relative importance of other factors in fostering productivity growth in the U.S.
4. why different developed countries invested different shares of total spending on capital investment in new technologies.
5. what will happen to productivity growth in the US in the next five years

3. In paragraph 2, the author is primarily concerned with:

1. defining productivity and identifying the types of factors that can affect its growth.
2. noting a correlation between a peak in capital investment and a peak in the growth of productivity.
3. emphasizing the impact of the amount of capital invested on the degree of improvement in methods used for production.
4. introducing an explanation that will then be tested by further investigation.
5. criticise an explanation that was later proved correct

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