Is it Possible to Decrease Inflation without Causing a Recession GMAT Reading Comprehension

Reading Passage Question

Is it possible to decrease inflation without causing a recession and its concomitant increase in unemployment? The orthodox answer is “no.” whether they support the “inertia” theory of inflation (that today’s inflation rate is caused by yesterday’s inflation, the state of the economic cycle, and external influences such as import prices) or the “rational expectations” theory (that inflation is caused by workers’ and employers’ expectations, coupled with a lack of credible monetary and fiscal policies), most economists agree that tight monetary and fiscal policies, which cause recessions, are necessary to decelerate inflation. They point out that in the 1980’s, many European countries and the United States conquered high (by these countries’ standards) inflation, but only by applying tight monetary and fiscal policies that sharply increased unemployment. Nevertheless, some governments’ policymakers insist that direct controls on wages and prices, without tight monetary and fiscal policies, can succeed in decreasing inflation. Unfortunately, because this approach fails to deal with the underlying causes of inflation, wage and price controls eventually collapse, the hitherto-repressed inflation resurfaces, and in the meantime, though the policymakers succeed in avoiding a recession, a frozen structure of relative prices imposes distortions that do damage to the economy’s prospects for long-term growth.

“Is it possible to decrease inflation without causing a recession GMAT Reading Comprehension” is a sample text for the exam GMAT.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. The passage suggests that the high inflation in the United States and many European countries in the 1980’s differed from inflation elsewhere in which of the following ways?

(A) It fit the rational expectations theory of inflation but not the inertia theory of inflation.
(B) It was possible to control without causing a recession.
(C) It was easier to control in those countries by applying tight monetary and fiscal policies than it would have been elsewhere.
(D) It was not caused by workers’ and employers’ expectations.
(E) It would not necessarily be considered high elsewhere.

2. Which of the following, if true, would most strengthen the author’s conclusion about the use of wage and price controls?

(A) Countries that repeatedly use wage and price controls tend to have lower long-term economic growth rates than do other countries.
(B) Countries that have extremely high inflation frequently place very stringent controls on wages and prices in an attempt to decrease the inflation.
(C) Some countries have found that the use of wage and price controls succeeds in decreasing inflation but also causes a recession.
(D) Policymakers who advocate the use of wage and price controls believe that these controls will deal with the underlying causes of inflation.
(E) Policymakers who advocate the use of wage and price controls are usually more concerned about long-term economic goals than about short-term economic goals.

3. The primary purpose of the passage is to

(A) apply two conventional theories.
(B) examine a generally accepted position
(C) support a controversial policy
(D) explain the underlying causes of a phenomenon
(E) propose an innovative solution

Suggested GMAT Reading Comprehension Questions

• The great white shark is considered to be an apex predator, GMAT Reading Comprehension
• Transgenic agriculture is the use of genetically modified crops to enhance the production of food GMAT Reading Comprehension
• With the evolution of terrestrial life about 400 million years ago, wind replaced water GMAT Reading Comprehension
• The progress of astronomy has always been closely associated with the development GMAT Reading Comprehension
• Donna Haraway’s Primate Visions is the most ambitious book GMAT Reading Comprehension
• While the Darwinian evolutionary principle of "survival of the fittest" GMAT Reading Comprehension
• A tiny fraction of binary systems belong to a curious subclass whose radiation GMAT Reading Comprehension
• The Gospel of DNA Research States that the All-Familiar Double-Helix is Made up of Two Base Pairs GMAT Reading Comprehension
• REM (rapid eye movement) sleep, also called "paradoxical" sleep GMAT Reading Comprehension
• In April 1841, medical missionary Reverend Peter Parker, M.D., addressed an enthusiastic audience GMAT Reading Comprehension
• The term "remote sensing" refers to the techniques of measurement GMAT Reading Comprehension
• VO2 max is more than merely a trendy buzzword for workout aficionados GMAT Reading Comprehension
• What does laughter mean GMAT Reading Comprehension
• The sloth bear, an insect-eating animal native to Nepal, exhibits only one behavior that is truly distinct from that of other bear species GMAT Reading Comprehension
• Homing pigeons can be taken from their lofts and transported hundreds of kilometers in covered cages to unfamiliar sites and yet, when released GMAT Readng Comprehension
• The ultimate pendulum clock, indeed the ultimate mechanical clock of any kind GMAT Reading Comprehension
• Structural unemployment—the unemployment that remains even at the peak of the economy’s upswings GMAT Reading Comprehension
• The most common metal in the Earth’s crust, aluminum (or aluminium) was not discovered until 1825 GMAT Reading Comprehension
• In their study of whether offering a guarantee of service GMAT Reading Comprehension
• In the wealth of nations (1776), Scottish economist Adam Smith asserted GMAT Reading Comprehension