Comprehension

ACTIVITY 16: You are to read the following reading passage carefully. When answering the questions 1-8 below, you are allowed to refer back to the passage. The questions are based on what is stated or implied in the text. Finally check the correct answers.

THE AMERICAN ECONOMY (passage written in 1972) The United States economy made progress in reducing unemployment and moderating inflation. On the international side, this year was much calmer than last. Nevertheless, continuing imbalances in the pattern of world trade contributed to intermittent strains in the foreign exchange markets. These strains intensified to crisis proportions, precipitating a further devaluation of the dollar. The domestic economy expanded in a remarkably vigorous and steady fashion. The resurgence in consumer confidence was reflected in the higher proportion of incomes spent for goods and services and the marked increase in consumer willingness to take on installment debt. A parallel strengthening in business psychology was manifested in a stepped-up rate of plant and equipment spending and a gradual pickup in outlays for inventory. Confidence in the economy was also reflected in the strength of the stock market and in the stability of the bond market. For the year as a whole, consumer and business sentiment benefited from rising public expectations that a resolution of the conflict in Vietnam was in prospect and that East-West tensions were easing. The underpinnings of the business expansion were to be found in part in the stimulative monetary and fiscal policies that had been pursued. Moreover, the restoration of sounder liquidity positions and tighter management control of production efficiency had also helped lay the groundwork for a strong expansion. In addition, the economic policy moves made by the President had served to renew optimism on the business outlook while boosting hopes that inflation would be brought under more effective control. Finally, of course, the economy was able to grow as vigorously as it did because sufficient leeway existed in terms of idle men and machines. The United States balance of payments deficit declined sharply. Nevertheless, by any other test, the deficit remained very large, and there was actually a substantial deterioration in our trade account to a sizable deficit, almost two thirds of which was with Japan. While the overall trade performance proved disappointing, there are still good reasons for expecting the delayed impact of devaluation to produce in time a significant strengthening in our trade picture. Given the size of the Japanese component of our trade deficit, however, the outcome will depend importantly on the extent of the corrective measures undertaken by Japan. Also important will be our own efforts in the United States to fashion internal policies consistent with an improvement in our external balance. The underlying task of public policy for the year ahead —and indeed for the longer run— remained a familiar one: to strike the right balance between encouraging healthy economic growth and avoiding inflationary pressures. With the economy showing sustained and vigorous growth, and with the currency crisis highlighting the need to improve our competitive posture internationally, the emphasis seemed to be shifting to the problem of inflation. The Phase Three program of wage and price restraint can contribute to dampening inflation. Unless productivity growth is unexpectedly large, however, the expansion of real output must eventually begin to slow down to the economy's larger run growth potential if generalized demand pressures on prices are to be avoided. Indeed, while the unemployment rates of a bit over five percent were still too high, it seems doubtful whether the much lower rates of four percent and below often cited as appropriate definitions of full employment do in fact represent feasible goals for the United States economy — unless there are improvements in the structure of labor and product markets and public policies influencing their operation. There is little doubt that overall unemployment rates can be brought down to four percent or less, for a time at least, by sufficient stimulation of aggregate demand. However, the resultant inflationary pressures have in the past proved exceedingly difficult to contain.

Questions 1-8

1.

This passage was most likely published in a...

A. popular magazine
B. general newspaper
C. science journal
D. financial journal
E. text book

2.

Confidence in the economy was expressed by all of the following except...

A. a strong stock market
B. a stable bond market
C. increased installment debt
D. increased plant and equipment expenditures
E. rising interest rates

3.

During the year in question, public confidence in the economy resulted in part from which of the following occurrences?:
I. Possible peace in Vietnam
II. Reduction in East-West tensions
III. An entente with China

A. I only
B. III only
C. I and II only
D. II and III only
E. I, II, and III

4.

According to the author, business expansion for the period under review was caused largely by...

A. stimulative monetary and fiscal policies
B. rising interest rates
C. increased foreign trade
D. price and wage controls
E. implementation of the Phase Three program

5.

Most of the trade deficit in the balance of payments was attributed to trade with which country?

A.  United Kingdom
B.  Japan
C. Germany
D. France
E.  Saudi Arabia

6.

Part of the public policy task, as outlined in the passage, is to...

A. cut consumer spending
B. prevent balance of payments deficits
C. devalue the dollar
D. avoid inflationary pressures
E. increase the balance of trade

7.

The Phase Three program contained...

A. higher income taxes
B. reduced government spending
C. devaluation of the dollar
D. productivity measures
E. wage and price controls

8.

The passage states that the unemployment rate at the time the article was written was...

A. 6 percent
B. a little over 5 percent
C. 5 percent
D. a little over 4 percent
E. 4 percent