QUESTION TEXT: Economist: Many of my colleagues are arguing…
QUESTION TYPE: Flawed Reasoning
CONCLUSION: There’s no argument for lowering interest rates.
REASONING: One reason for lowering interest rates isn’t valid.
ANALYSIS: The economist has shown that we don’t need to lower interest rates in order to stimulate economic growth. The flaw is that the economist ignores other possible reasons for lowering interest rates.
For this argument to have been correct, the economist would have had to say “and there are no other reasons for lowering interest rates”.
___________
- The economist didn’t cite any experts to support her argument. Instead, she disagreed with other expert economists.
- This didn’t happen.
Example of flaw: Lower interest rates can stimulate economic growth. Therefore, lower interest rates are economic growth. Any lowering of interest rates will always make us richer, and the country with the lowest rates will grow richest fastest. - CORRECT. If there are other reasons to lower interest rates, then the economist’s argument is badly incomplete.
- The economist didn’t say that lower interest rates are the only way to stimulate economic growth.
- This is a tempting answer. But the economist didn’t say that lowering interest rates will push the economy into unsustainable growth. Instead, the economist merely argued that lower interest rates aren’t needed. They might believe that a further lowering of interest rates would have no effect, since the economy is already growing.
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LSATMan says
Hi Graeme.
I’m confused about the apparent conflict between the wording in the stimulus and the wording in the answer. The answer says the economist “presumes” that a need to stimulate economic growth is the only possible reason to lower interest rates, and his critique of his colleagues is therefore ill founded. He believes his colleagues are wrong to want to lower the interest rate to stimulate economic growth since the economy is already growing. But in the stimulus the only reason given for his colleagues wanting to lower the interest rate is to stimulate economic growth. So to me he’s not merely assuming this is the only reason for lowering interest rates; his critique seems to be valid since stimulating economic growth is the only reason given by his colleagues to lower interest rates. Maybe I’m reading too much into it, but is this not contradictory?
If the first sentence of the stimulus had left out “in order to stimulate economic growth” then the answer would make perfect sense, but it does not so I’m left feeling indignant over the answer.
FounderGraeme Blake says
Suppose I say: “I want to earn money to buy clothes”
And you say: “You have enough clothes to last a lifetime. So you don’t need money”.
That’s what the economist did. They assumed that the reason mentioned is the *only* reason to lower rates. Hope that helps!
Note: This is an old comment but I wanted to clarify the point.