Neither a rising standard of living nor balanced trade, by itself, establishes a country's ability to compete in the international...

GMAT Critical Reasoning : (CR) Questions

Source: Official Guide

Critical Reasoning

Inference

MEDIUM

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Notes

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Neither a rising standard of living nor balanced trade, by itself, establishes a country's ability to compete in the international marketplace. Both are required simultaneously since standards of living can rise because of growing trade deficits and trade can be balanced by means of a decline in a country's standard of living.

If the facts stated in the passage above are true, a proper test of a country's ability to be competitive is its ability to

balance its trade while its standard of living rises

balance its trade while its standard of living falls

increase trade deficits while its standard of living rises

decrease trade deficits while its standard of living falls

keep its standard of living constant while trade deficits rise

Solution

Passage Visualization

Passage Statement	Visualization and Linkage
Neither a rising standard of living nor balanced trade, by itself, establishes a country's ability to compete in the international marketplace.	Establishes: Individual indicators are insufficient Examples: Country A: GDP per capita rises from $30,000 to $35,000 but has $200B trade deficit → Not competitive alone Country B: Achieves $0 trade balance but GDP per capita falls from $40,000 to $35,000 → Not competitive alone Key Insight: Single metrics can be misleading indicators of competitiveness
Both are required simultaneously	Establishes: Dual requirement for competitiveness Example: Country C: GDP per capita rises from $30,000 to $35,000 AND maintains balanced trade → Demonstrates competitiveness Pattern: True competitiveness requires concurrent achievement of both metrics
since standards of living can rise because of growing trade deficits	Establishes: Rising living standards can mask underlying weakness Concrete Example: Country D imports $500B, exports $300B (deficit: $200B) Access to cheap foreign goods boosts consumption GDP per capita appears to rise from $32,000 to $36,000 Illusion: Prosperity built on unsustainable borrowing Implication: Apparent prosperity may indicate competitive weakness
and trade can be balanced by means of a decline in a country's standard of living.	Establishes: Balanced trade can mask declining competitiveness Concrete Example: Country E reduces imports from $400B to $300B due to economic decline Exports remain at $300B → balanced trade achieved GDP per capita falls from $38,000 to $33,000 Illusion: Trade balance achieved through economic contraction Implication: Trade balance may indicate competitive decline, not strength
Overall Implication	Paradox Revealed: Each indicator can improve for the wrong reasons Rising living standards ≠ competitive strength (may indicate deficit spending) Balanced trade ≠ competitive strength (may indicate economic decline) True test: Simultaneous achievement of both metrics demonstrates genuine competitive ability

Valid Inferences

Inference: A country's competitive ability can only be properly tested by its capacity to achieve both rising standards of living and balanced trade at the same time.

Supporting Logic: Since rising standards of living alone can result from unsustainable trade deficits, and since balanced trade alone can result from economic decline that lowers living standards, neither metric by itself indicates genuine competitiveness. Therefore, only the simultaneous achievement of both rising living standards and balanced trade demonstrates that a country can compete effectively without relying on deficit spending or economic contraction.

Clarification Note: The passage does not suggest that other factors beyond these two metrics might be relevant for competitiveness, but establishes that any valid test must at minimum require both conditions to be met concurrently.

Answer Choices Explained

balance its trade while its standard of living rises

Balance its trade while its standard of living rises - This choice perfectly captures what the passage identifies as the proper test of competitiveness. Since the argument establishes that both metrics are 'required simultaneously' and explains why each alone is insufficient, the ability to achieve both rising living standards AND balanced trade at the same time would demonstrate genuine competitive strength. This directly follows from the passage's logic.

balance its trade while its standard of living falls

Balance its trade while its standard of living falls - This contradicts the passage's reasoning. While the passage mentions that trade can be balanced through declining living standards, it specifically identifies this as a problem that makes balanced trade alone insufficient as a competitiveness measure. A proper test wouldn't include declining living standards.

increase trade deficits while its standard of living rises

Increase trade deficits while its standard of living rises - The passage explicitly warns against this scenario, stating that 'standards of living can rise because of growing trade deficits.' This represents exactly the type of misleading indicator that the passage says doesn't establish competitive ability. Increasing deficits suggests weakness, not strength.

decrease trade deficits while its standard of living falls

Decrease trade deficits while its standard of living falls - While decreasing deficits might seem positive, the falling living standards component makes this inadequate as a competitiveness test. The passage emphasizes that both rising living standards AND balanced trade are needed simultaneously - declining living standards fails this requirement.

keep its standard of living constant while trade deficits rise

Keep its standard of living constant while trade deficits rise - Rising trade deficits indicate competitive weakness according to the passage's logic. Even maintaining living standards while deficits grow suggests the country is borrowing to maintain its position rather than competing effectively. This fails the balanced trade requirement.

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