During the 2008 financial crisis, economists observed that traditional risk assessment models failed to predict the cascade of bank failures....
GMAT Craft and Structure : (Structure) Questions
During the 2008 financial crisis, economists observed that traditional risk assessment models failed to predict the cascade of bank failures. This ______ prompted regulators to develop more comprehensive stress-testing frameworks for financial institutions.
Which choice completes the text with the most logical and precise word or phrase?
oversight
correlation
failure
analysis
Step 1: Decode and Map the Passage
Part A: Passage Analysis Table
| Text from Passage | Analysis |
|---|---|
| "During the 2008 financial crisis, economists observed that traditional risk assessment models failed to predict the cascade of bank failures." |
|
| "This ______" |
|
| "prompted regulators to develop more comprehensive stress-testing frameworks for financial institutions." |
|
Part B: Passage Architecture & Core Elements
Main Point: The failure of traditional risk models during the 2008 financial crisis led to regulatory improvements in stress-testing frameworks.
Argument Flow: The passage establishes that during the 2008 crisis, traditional risk assessment models failed to predict bank failures. This failure then prompted regulators to create more comprehensive stress-testing frameworks for financial institutions.
Step 2: Interpret the Question Precisely
This is a fill-in-the-blank question asking us to choose the best logical connector. The answer must create the right relationship between what comes before and after the blank.
Step 3: Prethink the Answer
- The word must logically connect the models' inability to predict bank failures with the regulatory response
- It should refer back to the problem described in the first sentence
- The relationship is causal - because of this thing, regulators took action
- The word should capture the essence of what went wrong with the risk models
oversight
- "Oversight" could mean supervision or a mistake/omission
- While oversight as "mistake" could work contextually, it is less precise than directly referring to the models breakdown
correlation
- "Correlation" refers to statistical relationships between variables
- Does not logically connect the problem with models to regulators developing new frameworks
failure
- Directly refers to the models inability to predict bank failures mentioned in the first sentence
- Creates clear causal logic: the failure prompted regulatory action
- Matches the passage emphasis on what went wrong with existing models
analysis
- "Analysis" suggests examination or study
- Does not capture the problematic nature of what happened with the models