Reading Comprehension for IBPS Clerk 2017: Set – 35

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Reading Comprehension for IBPS Clerk 2017


Directions: (1-10) Read the following passage carefully and answer the questions.
Both interest rates and stocks soared after the U.S. election. This is because everyone seems to agree that the new administration will spend a lot, collect less in taxes and cut back financial regulations. This is a mix that could fuel the economy and be good for stocks. But not so with bonds. We are likely to see higher interest rates as inflation rises, the Fed fights it with higher policy rates and firmer economic activity pushes market rates higher.
And these policy and market changes could also backfire on stocks if high inflation and higher wages actually drag economic activity down. Furthermore, higher U.S. rates relative to rates abroad are sure to push up the U.S. dollar, hurting exporters and manufacturers. This could also weaken the economy, bring down corporate revenue and dim prospects for stocks.

This would be a worst case scenario of higher nominal rates and a decelerating economy. It is known as stagflation, and it has a reserved spot next to deflation as a nightmare scenario for policymakers.

Also, the economic policies that the new administration has so far hinted at are radically different from what has been the norm in the past few decades. This guarantees that they will face strong headwinds before they can be implemented, including congressional opposition. There is a chance that the consensus scenario may never materialize, may be watered down or may take far longer than the market is willing to wait. So the optimism about stocks can prove to be short lived.

Regardless of whether stocks go up or down, it is quite likely that interest rates will remain above the historically low levels of last year or climb even higher. This could exacerbate vulnerabilities in the economy that have so far gone relatively unnoticed. One such issue, and a well-known trigger of past crises, is a large accumulation of private debt.
Debt is a key factor in lubricating economic activity. Households use it to buy homes or cars that could not otherwise afford, businesses use it to finance investments or fulfill orders in advance of payment, municipalities use it to pave roads and layout utilities and so on. Without debt, growth would be slow, halting, and ultimately impossible. Households, businesses, and governments always carry debt on their balance sheets and constantly take new debt to replace the one that comes due. When rates go up, the cost of rolling over debt goes up as well. That is why higher rates tend to dampen economic activity, which is a normal swing in the business cycle.

1.Why did the interest rates and stocks increase rapidly after the US elections?
a. Because the new administration was expected to increase government expenditure.
b. Because the new administration was expected to loosen financial regulations.
c. Because the new administration was expected to reduce taxes.
d. Both (a) and (b)
e. All (a), (b) and (c)

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2.In which case can policy and market changes backfire on stocks?
a. If increased inflation and higher wages pose a negative effect on economic activity.
b. If reduced public spending affect the foreign investments in a positive manner.
c. If the government increases corporate lending.
d. If economic predictions by the economists are wrong.
e. If the inflationary rate increases the value of dollar.

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3.How does the government pay off their debts as per the passage?
a. By lowering their expenses
b. By taking additional debts
c. By converting private debts into public debts
d. By increasing the tax rates
e. By issuing shares and debentures

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4.Why will the policies of the new administration be difficult to implement?
a. They are impractical, and cannot be practised.
b. They are too similar to the previous methods, which were not helpful.
c. They are extremely different from previous methods and will face political opposition.
d. They are only applicable in theory.
e. The infrastructure required for implementation is missing.

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5.Which of the following will be favoured if the new administration will increase expenditure and cut down on taxes and financial regulations?
a. Bonds
b. Stocks
c. Public Spending
d. Taxes
e. Public Borrowings

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6.How is debt important in the economy?
a. Municipalities and businesses require debt to carry out their businesses.
b. Growth of the economy would be impossible without debt.
c. Debt helps in preventing people from spending beyond their means.
d. Both (a) and (b)
e. All (a), (b) and (c)

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7.Which of the following words is closest in meaning to exacerbate as given in the passage?
a. execution
b. excavate
c. exterminate
d. augmentation
e. aggravate

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8.Which of the following words is farthest in meaning from decelerate as given in the passage?
a. affluence
b. access
c. expedite
d. rectify
e. artifice

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9.Which of the following words is closest in meaning to norm as given in the passage?
a. particular
b. catapulting
c. strange
d. unfamiliar
e. custom

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10.Which of the following words is farthest in meaning from consensus as given in the passage?
a. dissent
b. unanimity
c. accord
d. reconciliation
e. ubiquity

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