Many Observers Believe that Middle-Class Americans are Dogged by Debt

Reading Passage Question

Many observers believe that middle-class Americans are dogged by debt as a result of their own extravagant spending on luxury items. However, new research indicates that this is untrue. Harvard professor Elizabeth Warren demonstrates in her books, “The Fragile Middle Class” and "The Two-Income Trap,” that American families today have only about half as much discretionary income as their parents did, after paying for increasingly expensive basics like housing and health care. For instance, although nearly half of the money that the average American spends on food goes toward dining outside the home, most Americans still spend only 10% of their incomes on food. This is a drastic reduction from the 20% that they spent in the 1970s.

Skeptics of Warren's theory point to the rise in household incomes since the 1970s, but this is in many ways an illusion. Take as an example the “average” dual-income, two-child family; two wage earners means that their household income is about 75% higher than it would have been in the 1970s, but this is largely the result of the wife working outside the home, which also necessitates expenditures, like daycare and a second car, that would have been unnecessary to the same family a generation ago.

One reason that Americans appear to be spending more on items like electronics and clothing is that the prices of many consumer goods have gone down. Adjusted for inflation, the costs of some common items, like refrigerators and televisions, have decreased over 50% since the 1970s is allows middle-class Americans to achieve a higher standard of living than their parents, even as a much smaller percentage of their income is being spent on discretionary items.

However, this higher standard of living masks the real culprit behind the financial squeeze faced by the average American: skyrocketing costs for housing, health care, and education. Between 2000 and 2006, household incomes stagnated, while housing costs increased by 32%. Middle class financial anxiety isn't the product of too many lattes and designer shoes: it is the result of increased costs for the cornerstones of modern life.

“Many observers believe that middle-class Americans are dogged by debt”- is a GMAT reading comprehension passage with answers. Candidates need a strong knowledge of English GMAT reading comprehension.

This GMAT Reading Comprehension consists of 5 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 author's main purpose in writing the passage is to:

1. Discuss a problem that has been resolved
2. Rebut a popular view
3. Suggest a solution to a problem
4. Question research methods
5. Discredit experts

2. The passage implies which of the following about dual-income, two-child middle class families?

1. They would have fewer expenses if the wife did not work outside the home.
2. They should reduce their expenditures on luxury items in order to eliminate their consumer debt.
3. Expenditures for college education often mean that these families need to take out a second mortgage on their homes.
4. They spend more of their household income on food than on medical care.
5. They have a lower standard of living than did families in the 1970s.

3. It is reasonable to infer from the passage that “discretionary” purchases:

1. Account for a larger percentage of the average middle-class family’s expenditures than they did a generation ago.
2. Make up an increasing percentage of a family’s expenses as its household income increases.
3. Are things like health insurance, daycare, and automobile expenses.
4. Are not critical to a family's well-being, and can be eliminated when necessary.
5. Include consumer electronics like television sets.

4. According to the passage, since the 1970s the fixed expenditures of middle-class Americans:

1. have expanded to include costs like student loan debt that were not generally included in the budgets of families in the 1970s.
2. have become more manageable due to the increase in average household incomes that can be attributed to the addition of a second wage-earner in most families.
3. have increased at a greater rate than the average household income.
4. have become a smaller percentage of total household expenditures compared to housing costs for families living at or below the poverty line.
5. Have become less of a burden on the household income than the costs of food and clothing.

5. The organization of the passage can best be described by which of the following?

1. A thesis is stated, an example is cited in support of the thesis, and a counterexample is cited and then rebutted.
2. A searcher's methodologies are explored, statistics are debunked, and then a counterclaim is established.
3. A problem is examined, two possible solutions are discussed and then rebutted, and a third solution is advocated.
4. A possible explanation for a problem is presented, the explanation is debunked with examples and statistics, and an opposing explanation is presented.
5. A claim is made about a problem, examples of the problem are given, and then a solution discussed and ultimately advocated.

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