PSAT Reading Practice Test 29: Evidence-Based Questions

Questions 1-8 refer to the following information.

A political economist and a political philosopher present their views on the state of interest rates as of the beginning of the year 2016.

Passage 1
The economy is a delicate creature. In its fragility, it must be coddled and swaddled; prune
and trim it, water and bathe it in sunlight as needed and it shall bear forth all the fruits of
a healthy capitalist market. Contrarily, abandon the economy and she shall grow wild with
thorns jutting out at the flanks—the rebellion of the shrubbery overshadowing the beauty of
05the roses within.
The economy now is that rose bush; she has been left alone too long. Graciously, amaz
ingly, she has not collapsed in her solitude. In fact, modest growth has occurred, and, for
this, we must be ecstatic at our good fortune. But, that growth has soured of late, and we have
fallen into a state of inertia.
10Yes, I will readily admit that a recession most likely is not imminent, but the time is not now
to count our blessings and bask in the complacent contentment of a tragedy averted. No, we
must act with haste. Money has been too cheap for far too long now, and such low interest
rates are not the remedy for economic stagnation. Currently rates are next to nothing, which
was a fine solution during the crisis of 2008 and 2009. But, the stock market no longer is in a
15state of crisis; in fact, both equities and bonds are criminally overpriced.
As a value investor, with the exception of a handful of companies, there simply is not a
stock that I can pinpoint as a wise investment at this juncture. Historically, the price to earn
ings ratio of the S&P 500 stock index has hovered around 15 to 1. Now, however, that ratio has
ballooned to nearly 21, and opportunities for investment are scarce. Simply put, everything is
20overpriced, and our rose bush must be reined back in.
These minuscule interest rates just are not sustainable. Economic growth is no longer
occurring, but investors continue driving up prices as if it were. Overall, I fear we are reaching
a bubble, and bubbles, as you might well know, are prone to not being bubbles for long.
Passage 2
25The tragedy of asking the wrong question is that, no matter how poignant or precise the
diction, one cannot possibly attain the right answer. For instance, if my goal were to locate a
wrench, I could go to my local improvement store using my most ornate of vocabulary and
ask, "Where doth thou maintain thy hammers?" Alas, the store clerk might find me educated
and mysterious, but he would direct me toward the wrong tool.
30When I sit at the diner for lunch, I hear voices at the table next to me debating whether
the Federal Reserve should raise interest rates. "Of course they should," one voice will opine.
Inflation sows the seeds of collapse. And, when I wait in line at the Bureau of Motor Vehicles
to renew my license, I hear the same debate. "Why in the world should we raise interest
rates?" asks another. "Do we really believe the economy is strong enough to withstand the
35crunch that will follow?"
See, the crisis is not to do with interest rates, but in our questioning. It is not a matter of raising
or maintaining rates, but whether the federal government should be so heavily involved in fiscal policy
in the first place. We must look to Thomas Jefferson for our guidance on this matter.
That government is best which governs least because its people discipline themselves.
40We must return to our Laissez Faire roots, for the economy will take care of itself if given the
opportunity. Interest rates are not the issue. And, like my example at the home improvement
store, the situation calls for a wrench, but all we ever ask ourselves is which hammer to swing.