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GATE 2020 EC GA Q.6: solution and answer

GATE 2020 · ECGA Q.6 · 2 marks · MCQ

The global financial crisis in 2008 is considered to be the most serious world-wide financial crisis, which started with the sub-prime lending crisis in USA in 2007. The sub-prime lending crisis led to the banking crisis in 2008 with the collapse of Lehman Brothers in 2008. The sub-prime lending refers to the provision of loans to those borrowers who may have difficulties in repaying loans, and it arises because of excess liquidity following the East Asian crisis.

Which one of the following sequences shows the correct precedence as per the given passage?

  1. (A)

    East Asian crisis→ subprime lending crisis →banking crisis→ global financial crisis.

  2. (B)

    Subprime lending crisis→ global financial crisis→ banking crisis→ East Asian crisis.

  3. (C)

    Banking crisis→ subprime lending crisis→ global financial crisis → East Asian crisis.

  4. (D)

    Global financial crisis → East Asian crisis → banking crisis → subprime lending crisis.

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Answer and solution

ANSWER

(A) East Asian crisis→ subprime lending crisis →banking crisis→ global financial crisis.

Official answer: ASource: Official answer key, GATE 2020 EC (IIT Delhi)

  1. Read the question as a request for cause-before-effect order: each arrow means "comes before, or leads to". Write down every ordering the passage actually states.

  2. Link 1 (last sentence): sub-prime lending "arises because of excess liquidity following the East Asian crisis". So East Asian crisis → sub-prime lending crisis. Nothing in the passage is placed before the East Asian crisis, so it is the earliest event named.

  3. Link 2 (second sentence): "The sub-prime lending crisis led to the banking crisis in 2008". So sub-prime lending crisis (2007) → banking crisis (2008).

  4. Link 3 (first sentence): the global financial crisis in 2008 "started with the sub-prime lending crisis in USA in 2007". So sub-prime lending crisis → global financial crisis.

  5. The passage describes the global financial crisis as the overall outcome ("the most serious world-wide financial crisis") that began with the sub-prime crisis. The banking crisis, with the collapse of Lehman Brothers, is the 2008 event the sub-prime crisis led to along the way. Putting the links together: East Asian crisis → sub-prime lending crisis → banking crisis → global financial crisis.

  6. Check each option against the three stated links. The elimination below does not depend on the reading in step 5. (B) Subprime → global → banking → East Asian puts the East Asian crisis after the sub-prime crisis, which breaks Link 1. (C) Banking → subprime → global → East Asian puts the banking crisis before the sub-prime crisis, which breaks Link 2, and puts the East Asian crisis last, which breaks Link 1. (D) Global → East Asian → banking → subprime puts the banking crisis before the sub-prime crisis, which breaks Link 2, and puts the global crisis before the sub-prime crisis it started with, which breaks Link 3.

  7. (A) East Asian → subprime → banking → global satisfies Links 1, 2 and 3 and matches the chain in step 5. It is the only option that does. Answer: (A).

KEY IDEA

Turn every causal phrase in the passage into an arrow: "because of … following" gives East Asian → sub-prime, "led to" gives sub-prime → banking, and "started with" gives sub-prime → global. Then rule out every option that reverses any one of those arrows. Only (A) keeps all three.

WATCH OUT FOR

Ordering the events by where they appear in the passage (the global crisis is mentioned first and the East Asian crisis last) instead of by cause and effect. The East Asian crisis is mentioned last, but it is the earliest cause. Another slip is reading "started with" backwards and putting the global crisis before the sub-prime crisis, as (D) does.

From the GATE 2020 EC paper. Every question of this paper · Download the full paper · All 18 Reading questions, with notes

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