Question

Which one of the options below best summarises the passage?

• A. The passage claims that evaluating the effect of income inequality on economic growth without considering both short- and long- term consequences is misguided.
• B. The passage confines its discussion to financing gaps and corporate control while undercutting cross-country evidence and overlooking the significance of concerns regarding human capital accumulation, fertility rates, and income redistribution under democratisation.
• C. The passage argues that income inequality accelerates economic growth while also emphasising the significance of concerns regarding human capital accumulation, fertility rates, and political instability.
• D. The passage outlines investment, incentive, and governance channels through which income inequality may support economic growth and reports short-term gains while noting long-term drawbacks.
• A. After the emergency decree, the regime shifted toward authoritarianism as suffrage narrowed and opposition parties were deregistered.
• B. Corporate donations were capped and parties received public funding which was portrayed as establishing an oligarchy.
• C. Municipalities adopted participatory budgeting and recall elections which a press release called totalitarianism.
• D. The coalition imposed term limits and strengthened judicial review in order to further entrench autocratic rule.
• A. inequality boosts growth in every period and type of economy, regardless of finance or governance conditions.
• B. mature stock markets make wealth concentration unnecessary, yet they might still be harmful to investment.
• C. inequality can aid short-term growth in settings with high sunk costs, incentive alignment, and concentrated ownership.
• D. dispersed ownership speeds corporate decision-making and removes free rider problems.
• A. Pay rewards on verifiable performance for highly productive workers.
• B. Rents protected by market power that enlarge top incomes without linking pay to results.
• C. Wages are determined by tenure rather than output to ensure equity.
• D. A regime that concentrates stock ownership in relation to corporate governance.

Answer 1

The Correct Option is D

Step 1: Identify the main structure of the passage. & nbsp;

The passage presents:

• Three mechanisms through which inequality may promote growth:
  • Investment indivisibilities
  • Incentives/moral hazard
  • Governance and ownership concentration
• Empirical findings:
  • Short-run positive relationship between inequality and growth
  • Long-run negative relationship
• Counter-arguments:
  • Inequality harms growth via human-capital effects, fertility, political instability, and pressures for redistribution

Thus, the passage is not taking a side; it outlines channels supporting growth, but also discusses long-term disadvantages and negative correlations.

Step 2: Evaluate the options.

• Option (1): Too narrow. The passage does mention timeframes, but it also discusses mechanisms and counterarguments extensively.
• Option (2): Incorrect. The passage does not confine itself to financing gaps and governance; it explicitly includes incentives, political stability, redistribution, fertility, and human capital.
• Option (3): Incorrect. The passage does not argue that inequality accelerates growth overall — it shows both positive mechanisms and significant negative effects.
• Option (4): Correct.

It accurately captures:

• The three positive channels (investment, incentives, governance)
• The reporting of short-term gains
• The acknowledgment of long-term drawbacks and negative correlations

Conclusion:

Therefore, Option (4) best summarises the passage.

Answer 2

Step 1: What is democratization in the passage? & nbsp;

The passage explains democratization as a process that:

• Widens suffrage,
• Increases political participation,
• Empowers low- and middle-income voters.

So the opposite of democratization would involve:

• Restricting suffrage,
• Reducing political participation,
• Suppressing opposition.

Step 2: Evaluate the options.

• Option (1): ✔️ Describes a shift toward authoritarianism: suffrage narrowed, opposition parties were deregistered. This is the clearest opposite of democratization.
• Option (2): ✖️ Capping donations and providing public funding is not the opposite of democratization; it is a campaign finance reform.
• Option (3): ✖️ Participatory budgeting and recall elections actually increase democratic participation, even if mislabeled as totalitarianism.
• Option (4): ✖️ While it mentions “entrenching autocratic rule,” term limits and stronger judicial review normally reduce concentration of power, making the description contradictory and unclear.

Conclusion:

Thus, Option (1) best represents the opposite of democratization.

Answer 3

Step 1: Identify what the three-part case in the first half of the passage argues. & nbsp;

The passage presents three channels through which inequality might support economic growth:

1. Investment indivisibilities: high sunk costs require concentrated wealth.
2. Incentives and moral hazard: inequality motivates effort, innovation, and entrepreneurship.
3. Corporate governance: concentrated ownership improves monitoring and decision-making.

Step 2: Understand why these are mentioned.

These mechanisms are used to show why inequality might have a positive effect, especially in the short run, which is consistent with the empirical findings the passage reports (short-run positive, long-run negative).

Step 3: Evaluate the options.

• Option (1): Incorrect. The passage explicitly states that positive effects may be short-term and do not hold universally or in the long run.
• Option (2): Incorrect. This reverses the argument — the passage says concentrated ownership can be beneficial, not unnecessary.
• Option (3): Correct. It accurately captures that inequality may aid short-term growth in contexts where:
  • high sunk costs,
  • incentive needs,
  • and concentrated ownership
• Option (4): Incorrect. The passage says dispersed ownership creates free-rider problems and slows decisions, not the opposite.

Conclusion:

Thus, the correct answer is Option (3).

Answer 4

Step 1: Recall the moral hazard / incentive argument from the passage. & nbsp;

The passage explains that:

“Because economic performance is determined by the unobservable level of effort that agents make, paying compensations without taking into account performance will fail to elicit optimum effort. Thus, certain income inequalities contribute to growth by enhancing worker motivation and by rewarding innovators and entrepreneurs.”

So, inequality linked to performance-based rewards can raise growth by incentivising effort and innovation.

Step 2: Evaluate the options.

• Option (1): ✔ Correct. Paying rewards based on verifiable performance aligns incentives with effort, exactly matching the moral hazard argument.
• Option (2): ✖ Incorrect. Market-power-based rents increase incomes without linking them to performance — the passage explicitly states this fails to elicit optimal effort.
• Option (3): ✖ Incorrect. Tenure-based wages ignore performance; this contradicts the incentive argument.
• Option (4): ✖ Incorrect. Concentrated ownership relates to the corporate governance argument, not the incentive/moral hazard argument.

Conclusion:

Thus, the option most consistent with the incentive argument is Option (1).