Once the largest creditor nation, the United States is now the world's largest debtor. Although no one doubts that the...
GMAT Reading Comprehension : (RC) Questions
Once the largest creditor nation, the United States is now the world's largest debtor. Although no one doubts that the United States has increased its dependence on foreign capital, what all this borrowing tells us about the American economy is a matter of dispute. Some economists liken the United States to a rising corporation, attracting investments from other corporations eager to share in spectacular profits. According to this image, far from being a sign of decline, foreign investment in the United States is a sign of success. While this image is appealing, if the United States were truly a rising corporation most foreign investment would presumably be direct investment, which gives the investor some ownership, the better to profit from the strength of American business; however, most foreign investment in the United States is portfolio investment, which confers no direct ownership. Other economists compare the United States to a declining corporation; according to this image the United States, no longer competitive in world markets, is running a large trade deficit that can only be financed by borrowing from abroad.
There is some truth here. The United States has fallen behind its competitors in many areas and the trade imbalance has therefore widened. However, both images fail to acknowledge fully the role that the globalization of United States corporations has played in creating the foreign debt.
According to the author of the passage, which of the following factors is neglected by the economists mentioned in the two highlighted portions of text in their images of the United States as a debtor nation?
1. Passage Analysis:
Progressive Passage Analysis
| Text from Passage | Analysis |
|---|---|
| Once the largest creditor nation, the United States is now the world's largest debtor. | What it says: America used to lend money to other countries, now America borrows the most money from other countries. What it does: Sets up the topic - a major change in America's financial situation Source/Type: Factual statement (presented as accepted fact) Connection to Previous Sentences: This is our starting point - no previous information to connect to Visualization: • Past: US lends $500B to other countries • Present: US borrows $800B from other countries Reading Strategy Insight: Clear, simple opening. The author is giving us ONE basic fact to anchor everything that follows. What We Know So Far: America's financial role in the world has completely flipped What We Don't Know Yet: What this change means or why it happened |
2. Passage Summary:
Author's Purpose:
To analyze two competing economic explanations for America's debt situation and show why both explanations are incomplete because they ignore an important factor.
Main Point:
While economists debate whether America's borrowing shows economic success or decline, both sides miss a key piece of the puzzle - the role that American companies expanding their operations worldwide has played in creating America's foreign debt problem.
3. Question Analysis:
The question asks us to identify which factor is neglected by the economists mentioned in the "two highlighted portions of text" in their images of the United States as a debtor nation. The author's main thesis: "However, both images fail to acknowledge fully the role that the globalization of United States corporations has played in creating the foreign debt"
Why It's Wrong:
- The passage never discusses the speed or rate of America's transition from creditor to debtor status
- The author focuses on interpretations of the current debt situation, not the timeline of how it developed
- Neither group of economists is criticized for ignoring timing issues
Why It's Wrong:
- The passage makes no comparisons between the US and other countries that experienced similar transitions
- The author doesn't suggest that either group of economists fails to consider international comparisons
- The focus is entirely on different interpretations of the US situation, not comparative analysis
Why It's Right:
- Directly stated in the final sentence as what "both images fail to acknowledge fully"
- This represents the author's main thesis and criticism of both economic perspectives
- The globalization factor is presented as the missing piece that would complete our understanding
Why It's Wrong:
- While the passage discusses direct vs. portfolio investment, this isn't presented as something both groups ignore
- The direct investment discussion is used to critique the "rising corporation" view specifically, not both perspectives
- Benefits of direct investment aren't the focus - the issue is the type of investment actually occurring
Why It's Wrong:
- The passage doesn't mention any countries that have shifted from debtor to creditor status
- Neither group of economists is criticized for ignoring such examples
- The focus is on explaining America's current debtor status, not potential paths back to creditor status