Economist: The social impact of venture capital may be even larger than previously thought. A recent study calculated that a...
GMAT Critical Reasoning : (CR) Questions
Economist: The social impact of venture capital may be even larger than previously thought. A recent study calculated that a dollar of venture capital stimulates three to five times more inventions to be registered with the government each year than a dollar of corporate research and development spending. This implies that if the current surge of venture capital funding continues, it would generate as much innovation as all corporate research and development spending added together.
The economist's argument about venture-capital funding depends on which of the following assumptions?
Passage Analysis:
| Text from Passage | Analysis |
| The social impact of venture capital may be even larger than previously thought. |
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| A recent study calculated that a dollar of venture capital stimulates three to five times more inventions to be registered with the government each year than a dollar of corporate research and development spending. |
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| This implies that if the current surge of venture capital funding continues, it would generate as much innovation as all corporate research and development spending added together. |
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Argument Flow:
The economist starts with a claim that venture capital's social impact might be bigger than we thought, then backs this up with study data showing venture capital creates \(3-5\times\) more inventions per dollar than corporate R&D, and finally concludes that if venture capital funding keeps growing, it could generate as much innovation as all corporate R&D combined.
Main Conclusion:
If the current surge of venture capital funding continues, it would generate as much innovation as all corporate research and development spending added together.
Logical Structure:
The argument relies on taking a study about invention registration rates and assuming this directly translates to overall innovation levels. The economist uses the \(3-5\times\) efficiency ratio as evidence to predict that growing venture capital funding will match corporate R&D's total innovation output.
Prethinking:
Question type:
Assumption - We need to find what the economist must believe to be true for their conclusion to work. We're looking for hidden beliefs that, if false, would make the argument fall apart.
Precision of Claims
The argument makes precise quantitative claims: venture capital produces \(3-5\times\) more registered inventions per dollar than corporate R&D, and predicts venture capital could match ALL corporate R&D innovation output combined if current growth continues.
Strategy
To find assumptions, we need to identify gaps in the logic that could falsify the conclusion while respecting the study's facts. The economist jumps from 'venture capital creates more registered inventions per dollar' to 'venture capital will generate as much total innovation as all corporate R&D combined.' We need to find what must be true for this leap to work.
An increase in the number of inventions registered with the government is a sign of a surge in venture-capital funding.
This reverses the causal relationship presented in the argument. The economist uses the study data to predict what venture capital funding will accomplish, not to identify what indicates a surge in funding. The argument assumes venture capital funding leads to more registered inventions, not that more registered inventions signal increased venture capital funding. This choice confuses cause and effect.
Innovation is accurately reflected in the numbers of inventions registered with the government.
This is the core assumption the argument depends on. The economist jumps from 'venture capital creates more registered inventions per dollar' to 'venture capital will generate more innovation.' This leap only works if we assume that registered inventions accurately measure innovation. If registered inventions don't reflect true innovation levels, the entire conclusion collapses. This assumption is essential for the argument to function.
There has been a decline in the number of inventions registered with the government that resulted from corporate research- and – development spending.
The argument doesn't require any decline in corporate R&D invention registration. The economist's conclusion is based on the relative efficiency rates (\(3\text{-}5\mathrm{x}\) more inventions per dollar) and projected growth of venture capital funding. Whether corporate R&D registrations have declined, stayed the same, or even increased doesn't affect the logic of the argument.
Corporate research and development spending currently has a smaller social impact than does venture-capital spending.
While the economist suggests venture capital may have larger social impact, the argument doesn't depend on corporate R&D currently having smaller impact. The conclusion is about future potential if venture capital funding continues to surge, based on the efficiency comparison from the study. The current relative impact levels aren't necessary for this prediction.
Most corporations will remain fiscally conservative in their spending on research and development.
The argument doesn't require corporations to remain conservative in R&D spending. The economist's conclusion about venture capital matching corporate R&D innovation output is based on venture capital's higher efficiency rate and continued growth, not on any assumptions about corporate spending behavior staying constant.