Text 1Economic behavioral theory predicts that consumer spending should respond predictably to interest rate changes and employment levels. According ...
GMAT Craft and Structure : (Structure) Questions
Economic behavioral theory predicts that consumer spending should respond predictably to interest rate changes and employment levels. According to established models, lower interest rates encourage borrowing and spending, while higher employment increases disposable income and consumer confidence. These relationships form the foundation of monetary policy decisions made by central banks worldwide.
Text 2
A Federal Reserve analysis examined consumer behavior data from 1995 to 2020, tracking spending patterns across various economic conditions. The study revealed that consumer spending consistently increased following interest rate reductions and employment growth, with correlation coefficients exceeding 0.85 in most sectors. "The data strongly supports our theoretical predictions," said lead economist Dr. Sarah Chen, noting that "these findings provide solid empirical backing for current monetary policy approaches."
Based on the texts, what would the author of Text 1 most likely say about the analysis described in Text 2?
It raises important questions about the universal applicability of economic behavioral models.
It demonstrates correlation but does not establish the causal mechanisms underlying consumer decisions.
It confirms that established theoretical predictions about consumer behavior are empirically sound.
It provides useful historical data but may not predict future consumer responses to policy changes.
Step 1: Decode and Map the Passage
Create Passage Analysis Table
| Text from Passage | Analysis |
|---|---|
| "Economic behavioral theory predicts that consumer spending should respond predictably to interest rate changes and employment levels." |
|
| "According to established models, lower interest rates encourage borrowing and spending, while higher employment increases disposable income and consumer confidence." |
|
| "These relationships form the foundation of monetary policy decisions made by central banks worldwide." |
|
| "A Federal Reserve analysis examined consumer behavior data from 1995 to 2020, tracking spending patterns across various economic conditions." |
|
| "The study revealed that consumer spending consistently increased following interest rate reductions and employment growth, with correlation coefficients exceeding 0.85 in most sectors." |
|
| "The data strongly supports our theoretical predictions, said lead economist Dr. Sarah Chen, noting that these findings provide solid empirical backing for current monetary policy approaches." |
|
Provide Passage Architecture & Core Elements
Main Point: Economic behavioral theory's predictions about consumer spending responses to interest rates and employment are strongly supported by 25 years of Federal Reserve data.
Argument Flow: Text 1 establishes the theoretical foundation that consumer spending responds predictably to interest rate and employment changes, noting these relationships guide monetary policy worldwide. Text 2 then presents empirical evidence that validates this theory through a comprehensive Federal Reserve study showing strong correlations (>0.85) between the predicted relationships, with expert confirmation that the data supports the theoretical framework.
Step 2: Interpret the Question Precisely
What's being asked? What would the author of Text 1 most likely say about the analysis described in Text 2?
What type of answer do we need? The Text 1 author's likely perspective/reaction to Text 2's empirical findings
Any limiting keywords? "most likely" - we need the most reasonable response based on Text 1's perspective
Step 3: Prethink the Answer
- The author of Text 1 presents economic behavioral theory as having predictable, reliable relationships that form the foundation of global monetary policy
- They seem confident in these theoretical predictions
- Text 2 shows empirical data with very high correlations (>0.85) that match exactly what Text 1's theory predicted
- Text 2 includes an expert explicitly stating the data strongly supports the theoretical predictions
- From Text 1's perspective, Text 2 would be excellent news - it's empirical validation of their theoretical framework
It raises important questions about the universal applicability of economic behavioral models.
- Suggests the analysis raises questions about universal applicability
- But Text 2 actually supports the theory across most sectors with high correlations
It demonstrates correlation but does not establish the causal mechanisms underlying consumer decisions.
- Claims it shows correlation but not causation
- This is overly critical and doesn't match Text 1's confident tone about the theoretical relationships
It confirms that established theoretical predictions about consumer behavior are empirically sound.
- States it confirms that established theoretical predictions are empirically sound
- This perfectly matches how Text 1's author would view Text 2's findings
It provides useful historical data but may not predict future consumer responses to policy changes.
- Suggests the historical data may not predict future responses
- Doesn't align with Text 1's confident presentation of theory as foundational