GMAT Question of the Week #4: Critical Reasoning

High School Students Taking Test In Classroom

For this question, select the best of the answer choices given.

In troubled economic times, there is a shift in business from mainstream retail stores to discount retail stores as consumers aim to reduce their total monthly spending. For local discount stores, when unemployment rises or effective wages decline due to inflation or another cause, sales go up. By contrast, however, during periods of extreme economic hardship, business at discount stores stops improving and may even suffer.

Which of the following, if true, does most to explain the contrast described above?

A) During extreme economic hardship, businesses that are located near discount stores and which also cater to lower spending levels also suffer.

B) The lower overall levels of consumer spending are, the more discount stores will benefit.

C) When discount stores flourish, they may be able to hire additional staff and raise effective wages.

D) During extreme economic hardship, consumers may continue to reduce total spending even after they have shifted their purchases to the most economic outlets available.

E) Except during periods of extreme economic hardship, discount stores tend to thrive more in economies benefiting from a direct economic stimulus, which increases spending cash.

Click here for the answer and explanation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Explanation

When we read the question, we notice that this is an “explain” question. There’s not an argument here, but rather two facts separating by the phrase “by contrast.” we try to sum up the contrast. It’s that discount retail: 1) can do well in times of hardship, but 2) can also suffer in times of “extreme” hardship. The keyword “extreme” is key; the correct answer will address how moderate economic troubles are good for discount stores, but severe economic troubles are harmful.

Testing this prediction, Choice (A) doesn’t address the dual success/failure aspect. Nor does (B). Choice (C) sounds promising; when discount stores are doing well, the costs of wages goes up; could that be enough to push their business down? But we look back at the prompt, and it says in the second part that “business at discount stores stops improving and may even suffer.” It seems to be talking about the revenue side, not the cost side, especially given what precedes, and (C) doesn’t explain that. Choice (D) works: consumers spend more at discount stores under some hardship, but less under severe hardship. Choice (E) discusses only one side of the contrast.

The correct answer is (D).