One Of The Cornerstones Of Economic Reform In The Formerly Communist GMAT Reading Comprehension

Reading Passage Question

One of the cornerstones of economic reform in the formerly Communist states is privatization, which can be approached either gradually or rapidly. Under the gradual approach, a state bureau would decide if and when an enterprise is prepared for privatization and which form is most suitable for it. However, gradual privatization would only prolong the core problems of

inefficiency and misallocation of both labor and capital. Under one of two approaches to rapid privatization, shares of an enterprise would be distributed among the enterprise’s employees so that the employees would become the owners of the enterprise. This socialist-reform approach discriminates in favor of workers who happen to be employed by a modern and efficient enterprise as well as by placing workers’ property at great risk by requiring them to invest their property in the same enterprise in which they are employed rather than permitting them to diversify their investments.

A better approach involves distribution of shares in enterprises, free of charge, among all the people by means of vouchers—a kind of investment money. Some critics charge that voucher holders would not be interested in how their enterprises are managed, as may be true of small corporate shareholders in capitalist countries who pay little attention to their investments until the corporation’s profits fail to meet expectations, at which time these shareholders rush to sell their securities. While the resulting fall in stock prices can cause serious problems for a corporation, it is this very pressure that drives private firms toward efficiency and profitability. Other detractors predict that most people will sell their vouchers to foreign capitalists. These skeptics ignore the capacity of individuals to consider their own future—that is, to compare the future flow of income secured by a voucher to the benefits of immediate consumption. Even if an individual should decide to sell, the aim of voucher privatization is not to secure equality of property but rather equality of opportunity.

“One of the cornerstones of economic reform in the formerly Communist”- is a reading comprehension passage with answers for the GMAT. Candidates must have a strong understanding of English GMAT reading comprehension. This GMAT Reading Comprehension section contains 4 comprehension questions. The GMAT Reading Comprehension questions are intended to assess candidates' abilities to comprehend, analyze, and apply information or concepts. GMAT Reading Comprehension Practice Questions can help candidates actively prepare.

Solutions and Explanation

1. Which of the following is NOT mentioned in the passage as a possible adverse consequence of rapid privatization?

(A) Undue prolongation of inefficiency and misallocation
(B) Loss of ownership in domestic private enterprises to foreign concerns
(C) Financial devastation for employees of private enterprises
(D) Inequitable distribution of wealth among employees of various enterprises
(E) Instability in stock prices

2. Which of the following would the author probably agree is the LEAST desirable outcome of economic reform in formerly Communist countries?

(A) Effective allocation of labor
(B) Equitable distribution of property among citizens
(C) Financial security of citizens
(D) Equal opportunity for financial success among citizens
(E) Financial security of private enterprises

3. In responding to those “skeptics” who claim that people will sell their vouchers to foreign capitalists (Highlighted), the author implies that

(A) foreign capitalists will not be willing to pay a fair price for the vouchers.
(B) the future flow of income is likely in many cases to exceed the present exchange value of a voucher.
(C) foreign investment in a nation’s enterprises may adversely affect currency exchange rates.
(D) although the skeptics are correct, their point is irrelevant in evaluating the merits of voucher privatization.
(E) foreign capitalists are less interested in the success of voucher privatization than in making a profit.

4. Which of the following is LEAST accurate in characterizing the author’s method of argumentation in discussing the significance of falling stock prices (Text in Red)?

(A) Describing a paradox that supports the author’s position
(B) Asserting that one drawback of an approach is outweighed by countervailing considerations
(C) Rebutting an opposing position by suggesting an alternative explanation
(D) Discrediting an opposing argument by questioning its relevance
(E) Characterizing an argument against a course of action instead as an argument in its favor

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