4 questions: Q1, Q2, Q3, Q4. Solve each one here: tap the answer, press Check, then open the solution.
Passage
READ THE PASSAGE AND ANSWER THE QUESTIONS THAT FOLLOW.
Studies showing that income inequality plays a positive role in economic growth are largely based on three arguments. The first argument focuses on investment indivisibilities wherein large sunk costs are required when implementing new fundamental innovations. Without stock markets and financial institutions to mobilize large sums of money, a high concentration of wealth is needed for individuals to undertake new industrial activities accompanied by high sunk costs . . . [One study] shows the relation between economic growth and income inequality for 45 countries during 1966-1995. [It was found] that the increase in income inequality has a significant positive relationship with economic growth in the short and medium term. Using system GMM, [another study estimated] the relation between income inequality and economic growth for 106 countries during 1965–2005 period. The results show that income inequality has a positive impact on economic growth in the short run, but the two are negatively correlated in the long run. The second argument is related to moral hazard and incentives . . . Because economic performance is determined by the unobservable level of effort that agents make, paying compensations without taking into account the economic performance achieved by individual agents will fail to elicit optimum effort from the agents. Thus, certain income inequalities contribute to growth by enhancing worker motivation . . . and by giving motivation to innovators and entrepreneurs . . . Finally, [another study] point[s] out that the concentration of wealth or stock ownership in relation to corporate governance contributes to growth. If stock ownership is distributed and owned by a large number of shareholders, it is not easy to make quick decisions due to the conflicting interests among shareholders, and this may also cause a free-rider problem in terms of monitoring and supervising managers and workers. . . .
Various studies have examined the relationships between income inequality and economic growth, and most of these assert that a negative correlation exists between the two. . . . Analyzing 159 countries for 1980–2012, they conclude that there exists a negative relation between income inequality and economic growth; when the income share of the richest fifth of the population increases by 1%, the GDP decreases by 0.08%, whereas when the income share of the poorest fifth of the population increases by 1%, the GDP increases by 0.38%. Some studies find that income inequality has a negative impact on growth due to poor human capital accumulation and low fertility rates . . . while [others] point out that it creates political instability, resulting in lower investment. . . . [Some economists] argue that widening income inequality has a negative impact on economic growth because it negatively affects social consensus or social capital formation. One important research topic is the correlation between democratization and income redistribution. [Some scholars] explain that social pressure for income redistribution rises as income inequality increases in a democratic society. In other words, when democratization extends suffrage to a wider class of people, the increased political power of low- and middle-income voters results in broader support for income redistribution and social welfare expansion. However . . . if the rich have more political influence than the poor, the democratic system actually worsens income inequality rather than improving it.
Question 1TSPM based (Tone · Scope · Purpose · Main idea)
MCQ · +3 / −1 · medium
Which one of the options below best summarises the passage?
Answer and solution
Correct answer: C
Solution
Answer: C — The passage presents possible investment, incentive and governance benefits associated with income inequality, then contrasts these with adverse growth findings and human-capital, political and redistributive concerns.
1. Map paragraph 1: investment financing, performance incentives and concentrated ownership are presented as possible growth channels. 2. Notice the qualifications: one study finds short- and medium-term gains; another finds a negative long-term relationship. 3. Map paragraph 2: negative findings, human-capital concerns, political instability and redistribution complicate the positive account. 4. Eliminate A because the passage does not pronounce other evaluations misguided. Eliminate B because it presents acceleration as the overall conclusion. Eliminate D because the passage does discuss the concerns D says it overlooks. 5. C is the best available summary because it recognises the positive channels and adverse effects. It includes the contrast and the political qualification. 6. Answer: C.
Detailed reasoning and elimination check: The first half offers conditional benefits; the second gives several adverse mechanisms and a qualification about political influence. A balanced summary must keep this contrast instead of announcing a universal positive effect. The revised C names both halves without adding a policy recommendation.
G Strategy shortcut
Spot: Identify the exact question task and the relevant passage claim. Apply: Scope check: benefits + harms must both survive. C includes both; B overstates a positive conclusion and D says the opposite of the passage. Check: The first half offers conditional benefits; the second gives several adverse mechanisms and a qualification about political influence. A balanced summary must keep this contrast instead of announcing a universal positive effect. The revised C names both halves without adding a policy recommendation.
G Strategy: Spot: Identify the exact question task and the relevant passage claim.
Apply: Scope check: benefits + harms must both survive. C includes both; B overstates a positive conclusion and D says the opposite of the passage.
Check: The first half offers conditional benefits; the second gives several adverse mechanisms and a qualification about political influence. A balanced summary must keep this contrast instead of announcing a universal positive effect. The revised C names both halves without adding a policy recommendation.
According to the incentive or moral hazard argument, which one of the designs below is most consistent with the claim that some inequality can raise growth?
Answer and solution
Correct answer: D
Solution
Answer: D — Pay rewards on verifiable performance for highly productive workers.
1. Locate the moral-hazard argument: effort is unobservable and rewards unrelated to performance fail to motivate optimal effort. 2. Translate it into a rule: stronger performance should bring stronger rewards. 3. A concerns a different argument, ownership concentration. B rewards tenure rather than results. C increases rents without connecting rewards to output. 4. D pays high-performing workers on verifiable results and therefore implements the incentive mechanism. 5. Answer: D.
Detailed reasoning and elimination check: The diagnostic link is effort → observed performance → reward. A design belongs to this argument only if the reward follows output. Ownership structure, seniority pay and monopoly rents can be discussed economically but do not implement this particular chain.
G Strategy shortcut
Spot: Identify the exact question task and the relevant passage claim. Apply: Anchor = reward observable performance. Only D links compensation to results. Check: The diagnostic link is effort → observed performance → reward. A design belongs to this argument only if the reward follows output. Ownership structure, seniority pay and monopoly rents can be discussed economically but do not implement this particular chain.
G Strategy: Spot: Identify the exact question task and the relevant passage claim.
Apply: Anchor = reward observable performance. Only D links compensation to results.
Check: The diagnostic link is effort → observed performance → reward. A design belongs to this argument only if the reward follows output. Ownership structure, seniority pay and monopoly rents can be discussed economically but do not implement this particular chain.
The passage refers to “democratization”. Choose the one option below that comes closest to the opposite of this process.
Answer and solution
Correct answer: C
Solution
Answer: C — After the emergency decree, the regime shifted toward authoritarianism as suffrage narrowed and opposition parties were deregistered.
1. The passage defines democratisation through the extension of suffrage and increased influence for lower- and middle-income voters. 2. Its opposite must reduce participation or concentrate political power. 3. C explicitly narrows suffrage and removes opposition parties from registration. These actions match the opposite process. 4. A, B and D attach authoritarian labels to measures that do not themselves clearly reverse democratisation. Evaluate actions, not the labels used by a press release. 5. Answer: C.
Detailed reasoning and elimination check: Identify the change in who can participate. Extending suffrage broadens participation; narrowing suffrage and excluding opposition do the reverse. The labels totalitarian or oligarchic in a distractor cannot override what its described actions actually do.
G Strategy shortcut
Spot: Identify the exact question task and the relevant passage claim. Apply: Reverse the defining action: wider voting rights becomes narrower voting rights. C. Check: Identify the change in who can participate. Extending suffrage broadens participation; narrowing suffrage and excluding opposition do the reverse. The labels totalitarian or oligarchic in a distractor cannot override what its described actions actually do.
G Strategy: Spot: Identify the exact question task and the relevant passage claim.
Apply: Reverse the defining action: wider voting rights becomes narrower voting rights. C.
Check: Identify the change in who can participate. Extending suffrage broadens participation; narrowing suffrage and excluding opposition do the reverse. The labels totalitarian or oligarchic in a distractor cannot override what its described actions actually do.
The primary function of the three-part case for a positive income inequality–economic growth link in the first half of the passage is to show that:
Answer and solution
Correct answer: B
Solution
Answer: B — income inequality can aid short-term growth in settings with high sunk costs, incentive alignment, and concentrated ownership.
1. The question asks for the function of the positive case, not the conclusion of the whole passage. 2. The first argument discusses financing large initial costs, the second performance-linked incentives, and the third concentrated ownership and monitoring. 3. Together they explain conditions under which a positive growth relationship can arise. 4. A reverses the ownership argument. C covers only a financing detail and introduces an unsupported reservation. D falsely universalises the benefit across all periods and economies. 5. B retains the three conditions and the limited positive claim. Answer: B.
Detailed reasoning and elimination check: Distinguish paragraph purpose from whole-passage conclusion. The three arguments explain how growth might be supported under certain conditions. The later criticisms do not make those first-half arguments a claim of benefit at all times.
G Strategy shortcut
Spot: Identify the exact question task and the relevant passage claim. Apply: Predict before options: explain possible growth benefits under specified conditions. Match B. Check: Distinguish paragraph purpose from whole-passage conclusion. The three arguments explain how growth might be supported under certain conditions. The later criticisms do not make those first-half arguments a claim of benefit at all times.
G Strategy: Spot: Identify the exact question task and the relevant passage claim.
Apply: Predict before options: explain possible growth benefits under specified conditions. Match B.
Check: Distinguish paragraph purpose from whole-passage conclusion. The three arguments explain how growth might be supported under certain conditions. The later criticisms do not make those first-half arguments a claim of benefit at all times.
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