Reading Passage Question
The high unemployment rates of the early 1960s occasioned a spirited debate within the economics profession. One group found the primary cause of unemployment in slow growth and the solution in economic expansion. The other found the major explanation in changes that had occurred in the supply and demand for labor and stressed measures for matching demand with supply.
The expansionist school of thought, with the Council of Economic Advisers as its leading advocates, attributed the persistently high unemployment level to a slow rate of economic growth resulting from a deficiency of aggregate demand for goods and services. The majority of this school endorsed the position of the Council that tax reduction would eventually reduce the unemployment level to 4% of the labor force with no other assistance. At 4%, bottlenecks in skilled labor, middle-level manpower, and professional personnel were expected to retard growth and generate wage-price pressures. To go beyond 4%, the interim goal of the Council, it was recognized that improved education, training and retraining, and other structural measures would be required. Some expansionists insisted that the demand for goods and services was nearly satiated and that it was impossible for the private sector to absorb a significant increase in output. In their estimate, only the lower-income fifth of the population and the public sector offered sufficient outlets for the productive efforts of the potential labor force. The fact that the needs of the poor and the many unmet demands for public services held higher priority than the demands of the marketplace in the value structure of this group no doubt influenced their economic judgments.
Those who found the major cause of unemployment in structural features were primarily labor economists, concerned professionally with efficient functioning of labor markets through programs to develop skills and place individual workers. They maintained that increased aggregate demand was a necessary but not sufficient condition for reaching either the CEA’s 4% target or their own preferred 3%. This pessimism was based, in part, on the conclusion that unemployment among the young, the unskilled, minority groups, and depressed geographical areas is not easily attacked by increasing general demand. Further, their estimate of the numbers of potential members of the labor force who had withdrawn or not entered because of lack of employment opportunity was substantially higher than that of the CEA. They also projected that increased demand would put added pressure on skills already in short supply rather than employ the unemployed, and that because of technological change, which was replacing manpower, much higher levels of demand would be necessary to create the same number of jobs.
The structural school, too, had its hyperenthusiasts: Fiscal conservatives who, as an alternative to expansionary policies, argued the not very plausible position that a job was available for every person, provided only that he or she had the requisite skills or would relocate. Such extremist positions aside, there was actually considerable agreement between two main groups, though this was not recognized at the time. Both realized the advisability of a tax cut to increase demand, and both needed to reduce unemployment below a point around 4%. In either case, the policy implications differed in emphasis and not in content.
“The high unemployment rates of the early 1960s occasioned a spirited debate within the economics profession.”- is a GMAT reading comprehension passage with answers. Candidates need a strong knowledge of English GMAT reading comprehension.
This GMAT Reading Comprehension consists of 7 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
- The primary purpose of the passage is to
(A) suggest some ways in which tools to manipulate aggregate demand and eliminate structural deficiencies can be used to reduce the level of unemployment
(B) demonstrate that there was a good deal of agreement between the expansionist and structuralist theories on how to reduce unemployment in the 1960s
(C) explain the way in which structural inefficiencies prevent the achievement of a low rate of unemployment without wage-price pressures
(D) discuss the disunity within the expansionist and structuralist schools to show its relationship to the inability of the government to reduce unemployment to 4%
(E) describe the role of the Council of Economic Advisers in advocating expansionist policies to reduce unemployment to 4%
Answer: B
Explanation: “The high unemployment rates of the early 1960s occasioned a spirited debate within the economics profession." The opening line of the passage stated. One group concluded that economic development was the best cure for unemployment and that slow growth was its main cause. The other focused on methods to balance supply. Demand for labour and identified changes in these factors as the primary cause. This suggests that there was a lot of agreement. The passage's major goal is to draw a distinction between the structuralist and expansionist conceptions of how to lower unemployment in the 1960s.
- Which of the following is not mentioned in the passage as a possible barrier to achieving a 4% unemployment rate through increased aggregate demand?
(A) Technological innovation reduces the need for workers, so larger increases in demand are needed to employ the same number of workers.
(B) The increase in output necessary to meet an increase in aggregate demand requires skilled labor, which is already in short supply, rather than unskilled labor, which is available.
(C) An increase in aggregate demand will not create jobs for certain subgroups of unemployed persons such as minority groups and young and unskilled workers.
(D) Even if the tax reduction increases aggregate demand, many unemployed workers will be unwilling to relocate to jobs located in areas where there is a shortage of labor.
(E) An increase in the number of available jobs will encourage people not in the labor market to enter it, which in turn will keep the unemployment rate high.
Answer: D
Explanation: The impact of technological advancement, the lack of trained labour, the issue of minority and unskilled labour are all mentioned. The group of employees who aren't yet included in the labour force. The necessity of moving
employees to locations with a labour shortage is not mentioned, though. The last paragraph is the only one to mention moving. D is the correct reaction because it is never highlighted as a potential obstacle to hitting the 4% target.
- The author’s treatment of the “hyperenthusiasts” (Text in Red) can best be described as one of
(A) strong approval
(B) lighthearted appreciation
(C) summary dismissal
(D) contemptuous sarcasm
(E) malicious rebuke
Answer: C
Explanation: According to the author, the structural school too had its share of hyper enthusiasts. As an alternative to expansionary policies, fiscal conservatives advanced the implausible claim that there was employment for everyone. Only if he or she possessed the necessary abilities or was willing to move. C is the best choice, thus.
- Which of the following best describes the difference between the position taken by the Council of Economic Advisers and that taken by dissenting expansionists (Text in Blue)?
(A) Whereas the Council of Economic Advisers emphasized the need for a tax cut to stimulate general demand, the dissenters stressed the importance of structural measures such as education and training.
(B) Although the dissenters agreed that an increase in demand was necessary to reduce unemployment, they argued government spending to increase demand should fund programs for lower income groups and public services.
(C) The Council of Economic Advisers set a 4% unemployment rate as its goal, and dissenting expansionists advocated a goal of 3%.
(D) The Council of Economic Advisers rejected the contention, advanced by the dissenting expansionists, that a tax cut would help to create increased demand.
(E) The dissenting expansionists were critical of the Council of Economic Advisers because members of the Council advocated politically conservative policies.
Answer: B
Explanation: The second paragraph has the necessary reference. Where to spend the money that would be utilised to stimulate the economy became the point of contention between the Council of Economic Advisers and the dissident expansionists. The opposing group aimed to increase expenditure on public services and low-income individuals. This difference is very well illustrated in option B.
- The passage contains information that helps to explain which of the following?
(A) The fact that the economy did not expand rapidly in the early 1960s.
(B) The start of wage-price pressures as the unemployment rate approaches 4%.
(C) The harmful effects of unemployment on an individual worker.
(D) The domination of the Council of Economics by expansionists.
(E) The lack of education and training among workers in some sectors.
Answer: B
Explanation: Information that would bear on the issue raised by option B is included in the third paragraph. Regarding A, the passage has no such information. The author notes that the economy didn't grow quickly in the opening paragraph. But makes no effort to explain the occurrence that occurred in the early 1960s. And nowhere in the text does C get a mention. The paragraph does not address D, a political concern. The historical issue E is also left unanswered.
- Which of the following best describes the author’s attitude toward the expansionists (Highlighted)?
(A) The author doubts the validity of their conclusions because they were not trained economists.
(B) The author discounts the value of their judgement because it was colored by their political viewpoint.
(C) The author refuses to evaluate the value of their contention because he lacks sufficient information.
(D) The author accepts their viewpoint until it can be demonstrated that it is incorrect.
(E) The author endorses the principles on which their conclusions are based but believes their proposal to be impractical.
Answer: B
Explanation: The author does downplay the significance of their findings, but not because they lack economics training. So rule out A. Regarding C, nothing indicates that the author is lacking in knowledge. Instead, it appears from the passage that the author has enough knowledge to disprove the claim. D must be incorrect since it directly contradicts this analysis. E may be ignored for the same reason. In the final sentences of paragraph two. The author makes reference to a dissident group of expansionists. Regarding their claims, the author makes the observation that their commitment to particular political beliefs probably influenced their economic judgements. The author has little trust in their arguments because of this. This argument is well highlighted by Option B.
- It can be inferred from the passage that the hyperenthusiasts (Text in Red) contended that
(A) the problem of unemployment could be solved without government retraining and education programs
(B) the number of persons unemployed was greatly overestimated by the Council of Economic Advisers
(C) a goal of 3% unemployment could not be reached unless the government enacted retraining and education programs
(D) the poor had a greater need for expanded government services than the more affluent portion of the population
(E) fiscal policies alone were powerful enough to reduce the unemployment rate to 4% of the workforce
Answer: A
Explanation: The author never clearly says or even implies in the passage that someone exaggerated the number of unemployed persons. So rule out B. Regarding C, this offers an interpretation that conflates the main-line structuralists with the hyper enthusiasts paragraph 4) and paragraph three. D is wrong because it confuses the structuralist school's hyper-fanatics with those of the expansionary school. Finally, E is wrong since it captures the viewpoint of the dominant expansionist faction. The hyper-enthusiasts argued that there was already employment available using structuralist-style reasoning. Given this, the hyper enthusiasts disagreed with both the expansionists' and the structuralists' positions. They believed there was an issue with unemployment. Therefore, we might conclude that the core element of the hyper enthusiasts' argument was that absolutely no government intervention was required. At the very least, no government action of the kind being debated by the author's main camps.
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