PrepTest 157, Section 2, Question 4
Economist: Our country needs as much capital as(48 more words not shown)
Which one of the following,(7 more words not shown)
- ATo sustain its(14 more words not shown)
- BLaws that would(20 more words not shown)
- CThe historical periods(26 more words not shown)
- DIn countries other(30 more words not shown)
- ETwo years ago,(16 more words not shown)
Reading the argument
Would you invest somewhere that makes it hard to get your money back?
That's the problem with the economist's proposal. The country needs money from overseas investors. But locking that money in could make investors think twice before sending more. Protecting the investment already inside the country might cost the country future investment.
Even the earlier claim that we can't afford any reduction deserves a pause. What if one investor takes money out and another puts in a hundred times as much? A withdrawal needn't leave the country worse off if incoming investment more than replaces it. We need to consider money coming in as well as money going out.
What we’re looking for
The question asks us to weaken the recommendation. The most direct objection is the consequence the economist overlooks: making withdrawals harder could discourage the additional investment the economy needs. Give us evidence that investors would react that way.
Working the answers
- A
The country might need a better spread of investment across its industries. That doesn't tell us whether restricting overseas investors' withdrawals is a good way to maintain investment. The two recommendations could coexist. We need a problem with this proposal, not another economic goal.
- BCorrect
These restrictions would strongly discourage overseas investors from putting in additional capital. That directly connects the proposed law to the consequence we worried about. The economist starts by saying the country needs as much overseas investment as possible, then recommends something that would deter more of it. Keeping existing capital becomes less persuasive as a solution when the means of keeping it interferes with future investment.
- C
This shows that strong economic growth and high overseas investment occurred during the same periods. That may fit the economist's concern about maintaining investment. But it doesn't establish that restricting withdrawals will achieve that goal. We still need to know how investors would respond to the new rules.
- D
A law can fail to stop every withdrawal and still make withdrawals much more difficult. The economist proposes making removal harder, not guaranteeing that no investor ever removes any money. Evidence of incomplete success in other countries therefore doesn't show that the proposal would backfire. B identifies a concrete cost to the proposal; D merely tells us similar laws weren't perfect barriers.
- E
Some restrictions already exist. What happened because of them? Did investors continue investing, or did new investment dry up? E doesn't say. The existence of earlier laws, without their effects, doesn't give us a reason to reject the proposed increase in restrictions.
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