An analysis by economist Janet Yellen demonstrates that the volatility of currency exchange rates—the degree to which rates fluctuate over...

Let's begin by understanding the meaning of this sentence. We'll use our understanding of pause points and segment the sentence as shown - understanding and assimilating the meaning of each segment bit by bit!

Sentence Structure

• An analysis by economist Janet Yellen demonstrates
  • that the volatility of currency exchange rates—
    • the degree to which rates fluctuate over time—
    • in nations with limited central bank independence
  • [?] substantially higher
  • than the volatility in countries where central banks operate autonomously.

Where [?] = to be / will be / is / being

Understanding the Meaning

Let's read from the beginning and build our understanding:

'An analysis by economist Janet Yellen demonstrates'

• So we have a study or analysis that shows us something.

'that the volatility of currency exchange rates'

• It demonstrates something about volatility – how much exchange rates go up and down.

We get a clarifying phrase in dashes:

• '—the degree to which rates fluctuate over time—'
  • This is just explaining what volatility means: how much rates change over time.

'in nations with limited central bank independence'

• We're focusing on countries where the central bank doesn't operate independently.

This is where we have the blank. Let's look at the choices:

• to be / will be / is / being

To see what works here, let's read the rest of the sentence and understand what it's saying!

'[blank] substantially higher than the volatility in countries where central banks operate autonomously'

Now let's understand what the complete sentence is telling us:

• The analysis shows that volatility in one group of countries compares to volatility in another group
• Specifically: volatility in nations with limited central bank independence compared to volatility where banks are autonomous
• The relationship: the first group's volatility [verb] substantially higher than the second group's

What do we notice about the structure here?

• After "demonstrates that," we have a complete clause that states the finding
  • Subject: "the volatility of currency exchange rates...in nations with limited central bank independence"
  • The core subject is "the volatility" – a singular noun
  • All those other phrases ("of currency exchange rates," "in nations with limited central bank independence") are just describing which volatility we're talking about

• The blank needs to be the main verb of this clause
  • It needs to work with the singular subject "the volatility"
  • It's stating a finding – a fact that the analysis demonstrates

So we need a singular verb that can serve as the main verb of the clause. The correct answer is is.

• "The volatility...is substantially higher" – this matches our singular subject and states the finding clearly.

GRAMMAR CONCEPT APPLIED

Matching Verbs to Their Subjects (Subject-Verb Agreement)

When you're choosing the right verb form, you need to:

1. Identify the true subject – even when other words come between the subject and verb:
   • "The volatility of currency exchange rates in nations with limited central bank independence [verb]..."
   • Core subject: "the volatility" (singular)
   • Don't be distracted by: "rates" or "nations" (these are part of descriptive phrases)
2. Make sure the verb is finite – it needs to be conjugated to work as the main verb of a clause:
   • ✓ Finite verbs: is, are, was, were, will be, has been (can serve as main verbs)
   • ✗ Non-finite forms: to be, being (infinitives and participles can't serve as main verbs alone)
3. Match the verb number to the subject:
   • Singular subject → singular verb: "the volatility is..."
   • Plural subject → plural verb: "the rates are..."

In this question:

• Subject: "the volatility" (singular)
• Needed: finite, singular verb
• Answer: "is" ✓

Another example:

• "The collection of paintings in museums across Europe [demonstrates/demonstrate] the artist's range."
• Core subject: "the collection" (singular)
• Correct verb: "demonstrates" (singular, finite)