Austerity Measures - IELTS Reading Answers & Explanations
From IELTS Simulation Tests Academic Reading Test 02 · Part 3 · Questions 27–40
Reading Passage
You should spend about 20 minutes on Questions 27–40 which are based on Reading Passage 3 below.
Austerity Measures
Austerity measures are actions that a state undertakes in order to pay back its creditors. These measures typically involve slashing government expenditure and hiking taxes, and most of the time these are imposed on a country when its national deficit is believed to have become unsustainable. In this situation, banks may lose trust in the government's ability or willingness to repay existing debts, and in return can refuse to roll over current loans and demand cripplingly excessive interest rates on new lending. Governments frequently then turn to the International Monetary Fund (IMF), an inter-governmental organisation that functions as a lender of last resort. In return, the IMF typically demands austerity measures so that the indebted country is able to curtail its budget deficit and fulfil their loan obligations.
A wave of austerity measures across Europe in 2010 has seen cuts and freezes to pensions, welfare and public sector salaries as well as hikes to some taxes and excises. The Greek programme attempts to narrow its budget shortfall from 8.1 percent of GDP in 2010 to 2.6 percent of GDP in 2014 primarily by freezing public sector incomes during that period and reducing public sector allowances by 8 percent. Additionally, VAT—the Greek sales tax—will be elevated to 23 percent, and excises on fuel, tobacco and alcohol are also subject to an increase. The statutory retirement age for women will be raised to 65, matching it with the current retirement age for men. These reforms have been deeply unpopular in Greece, prompting a succession of general strikes that have further dented the economy.
IMF-imposed austerity measures have been indicted for encouraging the deep recession following the Asian financial crisis of 1997. Starting from the early 1990s, international investors from wealthier countries such as Japan and the United States began pouring money into Southeast Asia, looking to make some quick returns, and the soaring economies of Thailand, Philippines, Malaysia and others earned themselves the title "the Asian tigers". When things started to turn sour, however, the foreign investors panicked and retracted their investments en masse, decimating Asian currencies and turning millions of employees out of work. The IMF's role in the recovery was to impose austerity measures that kept interest rates high while driving down wages and labour standards at a time when workers were already suffering. According to one former IMF economist, these interventions on a global scale have caused the deaths of 6 million children every year.
Many economists consequently view austerity measures as a terrible blunder. John Maynard Keynes was the first to propose an alternative method, long before the Asian financial crisis. Governments, he attempted to demonstrate, could conceivably spend their national economy out of debt. Although logically implausible at first blush, this argument is based on the notion that recessions deepen from a persistent cycle of low incomes, low consumer spending and low business growth. A government can theoretically reverse this downward spiral by injecting the economy with much needed (albeit borrowed) capital. This is not equivalent to an indebted consumer spending further into the red, Keynes argued, because while the consumer gains no further income on that expenditure, the government's dollar goes into the economy and then partially boomerangs later on in the form of taxation.
Nobel-prize winning economist Joseph Stiglitz follows up on this approach by noting that households across the world are currently burdened with debt. For businesses to grow, he argues, government and consumer expenditure must kick in first. Austerity measures lower the spending capacity of households, and are therefore considered under-productive. Another recipient of the Nobel Prize, Paul Krugman, points to the recent experiences of countries such as Ireland, Latvia and Estonia. Countries that implement austerity are the "good soldiers" of the crisis, he notes, implementing savage spending cuts. "But their reward has been a slump—and financial markets continue to treat them as a serious default risk".
In the United Kingdom, Prime Minister David Cameron defended the necessity of austerity measures for his country by denouncing the frivolity of governments that ratchet up spending at a time the economy is contracting. This is in line with the counter-Keynesian viewpoint, known broadly as the neoclassical position. Neoclassical economists argue that business is "inspired" by fiscally conservative governments, and this "confidence" helps re-ignite the economy. A British think-tank economist, Marshall Auerback, questions this line of thinking, wondering if Cameron suggests governments should only "ratchet up spending when the economy is growing." This, Auerback warns, should be avoided because it presents genuine inflationary dangers.
Questions
Questions 27–31 Summary Completion
Complete the summary below.
Choose NO MORE THAN TWO WORDS from the passage for each answer.
Write your answers.
A government can undergo austerity measures by cutting spending and/or raising 27. If banks do not believe that a government will settle its debts, they may ask for 28 that are too high to pay back. In these cases, the IMF is sometimes prepared to lend money to these governments. One of the conditions of IMF loans is that recipient countries undergo austerity measures to reduce their 29 and repay any debts.
The IMF has attracted criticism for its role in Asia after the 1997 financial crisis. The crisis was caused when international investors pulled their money out of the region at once, causing 30 to fail and unemployment to rise. The IMF's austerity measures set conditions that lowered incomes and 31. These policies have caused great suffering internationally.
Questions 32–35 Four Choices
Choose FOUR letters, A–G.
Write the correct letters.
Questions 36–40 Matching Features
Look at the following statements and the list of people below.
Match each person with an appropriate statement, A–F.
Write the correct letter, A–F.
A. Businesses will grow after the government and consumers spend more.
B. Harsh austerity measures have caused some economies to decline.
C. Government spending can help a country get out of debt.
D. Governments should not raise spending while the economy is expanding.
E. It is wasteful for governments to spend while the economy is getting smaller.
F. Governments that introduce austerity measures are rewarded with economic success.
Answers & Explanations Summary
| # | Answer | Evidence | Explanation |
|---|---|---|---|
| Q27 | taxes | These measures typically involve slashing government expenditure and hiking taxes, and most of the time these are imposed on a country when its national deficit is believed to have become unsustainable | Excerpt/Passage Explanation: The passage explains that austerity actions usually mean cutting down government spending and increasing taxes. Answer Explanation: The answer "taxes" refers to the money that people and businesses must pay to the government. Reason For Correctness: The correct answer is "taxes" because the text explains what austerity measures usually include. In the text, "hiking taxes" matches "raising taxes", and "slashing government expenditure" matches "cutting spending". Therefore, "taxes" correctly fills the blank. |
| Q28 | interest rates | In this situation, banks may lose trust in the government's ability or willingness to repay existing debts, and in return can refuse to roll over current loans and demand cripplingly excessive interest rates on new lending | Excerpt/Passage Explanation: The passage explains that if banks do not believe a government will pay back its loans, they can stop renewing loans and ask for extremely high extra fees (interest rates) on any new loans they provide. Answer Explanation: The answer refers to the extra fee charged on borrowed money that borrowers must pay back to the bank. Reason For Correctness: The correct answer is "interest rates" because the passage explains what banks do when they do not trust a country's ability to pay back its debt. The text states that banks may "demand cripplingly excessive interest rates on new lending." In the summary, "ask for" matches "demand", "too high to pay back" matches "cripplingly excessive", and "settle its debts" matches "repay existing debts". |
| Q29 | budget deficit | In return, the IMF typically demands austerity measures so that the indebted country is able to curtail its budget deficit and fulfil their loan obligations | Excerpt/Passage Explanation: The passage explains that when the IMF gives money, it requires the country to make spending cuts and tax changes to lower its extra debt and pay back its loans. Answer Explanation: The answer means the amount of money a government spends that is higher than the money it earns. Reason For Correctness: The correct answer is "budget deficit" because the text explains that the IMF asks countries to adopt austerity rules so they can reduce ("curtail") their "budget deficit" and pay back what they owe ("fulfil their loan obligations"). |
| Q30 | Asian currencies / currencies / Asian economies / economies | When things started to turn sour, however, the foreign investors panicked and retracted their investments en masse, decimating Asian currencies and turning millions of employees out of work | Excerpt/Passage Explanation: The passage explains that when economic trouble started, outside investors quickly removed their money all together, which heavily damaged Asian currencies and caused widespread unemployment. Answer Explanation: The answer refers to the money systems or currencies of countries in Asia. Reason For Correctness: The correct answer is correct because the passage describes how foreign investors quickly took all their money back, which resulted in "decimating Asian currencies" and causing millions to lose their jobs. In the summary, "pulled their money out of the region at once" matches "retracted their investments en masse", and "causing [Asian currencies] to fail" matches "decimating Asian currencies". |
| Q31 | labour standards / labor standards | The IMF's role in the recovery was to impose austerity measures that kept interest rates high while driving down wages and labour standards at a time when workers were already suffering | Excerpt/Passage Explanation: The passage explains that the IMF enforced rules that kept interest rates high and reduced both workers' pay (wages) and workers' rights/conditions (labour standards). Answer Explanation: The answer "labour standards" means the rules and conditions that protect workers and their working environment. Reason For Correctness: The correct answer is supported by the text discussing the IMF's role after the 1997 Asian financial crisis. The summary states that the IMF's measures "lowered incomes and ". In the text, the phrase "driving down wages" means lowering incomes, and it is directly paired with "labour standards". Therefore, "labour standards" is the exact two-word phrase that completes the sentence. |
| Q32 | — | — | |
| Q33 | — | — | |
| Q34 | — | — | |
| Q35 | B / C / D / F | The Greek programme attempts to narrow its budget shortfall from 8.1 percent of GDP in 2010 to 2.6 percent of GDP in 2014 primarily by freezing public sector incomes during that period and reducing public sector allowances by 8 percent. Additionally, VAT—the Greek sales tax—will be elevated to 23 percent, and excises on fuel, tobacco and alcohol are also subject to an increase. The statutory retirement age for women will be raised to 65, matching it with the current retirement age for men | Excerpt/Passage Explanation: The passage explains the key parts of Greece's economic plan: cutting government worker allowances, increasing the sales tax (VAT) to 23 percent, adding higher taxes on items like tobacco, and raising the retirement age of women to 65 so that it is equal to men's retirement age. Answer Explanation: The answer means that the Greek austerity plan included four specific actions: lowering extra payments (allowances) for government workers, increasing the sales tax (VAT), setting the required retirement age to 65 for both men and women, and raising taxes on tobacco products (cigarettes) to make them more costly. Reason For Correctness: The correct answer is supported by the second paragraph of the text, which lists the exact details of the 2010 Greek austerity programme: 1. "reducing public sector allowances by 8 percent" matches choice B (cutting allowances for public sector workers). 2. "VAT—the Greek sales tax—will be elevated to 23 percent" matches choice C (raising the sales tax). 3. "The statutory retirement age for women will be raised to 65, matching it with the current retirement age for men" matches choice D (making the compulsory retirement age the same for both genders). 4. "excises on fuel, tobacco and alcohol are also subject to an increase" matches choice F (making cigarettes more expensive). Other choices are incorrect: wages were frozen rather than reduced (not A), strikes were a public reaction rather than a government measure (not E), and the deficit was narrowed rather than completely eliminated (not G). |
| Q36 | C | John Maynard Keynes was the first to propose an alternative method, long before the Asian financial crisis. Governments, he attempted to demonstrate, could conceivably spend their national economy out of debt | Excerpt/Passage Explanation: The passage explains that John Maynard Keynes suggested a new idea: governments could use spending to help their economy get out of debt. Answer Explanation: The answer means that when a government spends money, it can help the country escape its debt problems. Reason For Correctness: The correct answer is C because the text states that John Maynard Keynes proposed that governments could "spend their national economy out of debt." This idea directly matches statement C, which says that government spending can assist a country in getting out of debt. Key terms to notice are "spend... out of debt" in the passage, which corresponds directly to "help a country get out of debt" in the answer choice. |
| Q37 | E | In the United Kingdom, Prime Minister David Cameron defended the necessity of austerity measures for his country by denouncing the frivolity of governments that ratchet up spending at a time the economy is contracting | Excerpt/Passage Explanation: The passage explains that UK Prime Minister David Cameron supported spending cuts by speaking out against the wastefulness of governments that spend more money when the economy is shrinking. Answer Explanation: The answer E means that David Cameron believes it is foolish and wasteful for governments to increase their spending during times when the economy is shrinking. Reason For Correctness: The correct answer is E because the passage states that David Cameron supported austerity measures by criticizing the "frivolity" (careless wastefulness or lack of seriousness) of governments that increase ("ratchet up") spending while the economy is shrinking ("contracting"). This directly matches statement E. |
| Q38 | D | A British think-tank economist, Marshall Auerback, questions this line of thinking, wondering if Cameron suggests governments should only "ratchet up spending when the economy is growing." This, Auerback warns, should be avoided because it presents genuine inflationary dangers | Excerpt/Passage Explanation: The passage explains that Marshall Auerback warns that increasing government spending while the economy is growing should not be done because it can cause dangerous inflation. Answer Explanation: The answer "D" means that Marshall Auerback believes governments must not increase their spending when the economy is already growing larger. Reason For Correctness: The correct answer is D because the last paragraph mentions economist Marshall Auerback. He warns against governments choosing to "ratchet up spending when the economy is growing" because doing so causes real inflation risks (price increases). In this context, "ratchet up spending" matches "raise spending", and "when the economy is growing" matches "while the economy is expanding". |
| Q39 | A | For businesses to grow, he argues, government and consumer expenditure must kick in first | Excerpt/Passage Explanation: The passage explains that, according to Joseph Stiglitz, business growth requires the government and everyday people to spend money first. Answer Explanation: The answer means that companies will expand and do better only after both the government and normal people start spending money. Reason For Correctness: The correct answer is A because the text specifically states that economist Joseph Stiglitz believes that for businesses to grow, spending by both the government and consumers must begin first. In the passage, "consumer expenditure" means spending by buyers/consumers, and "kick in" means to start or happen. |
| Q40 | B | Another recipient of the Nobel Prize, Paul Krugman, points to the recent experiences of countries such as Ireland, Latvia and Estonia. Countries that implement austerity are the "good soldiers" of the crisis, he notes, implementing savage spending cuts. "But their reward has been a slump—and financial markets continue to treat them as a serious default risk" | Excerpt/Passage Explanation: The passage explains that Paul Krugman looked at countries like Ireland, Latvia, and Estonia. Even though these countries strictly followed austerity rules by making very harsh spending cuts, their economies still suffered an economic drop or recession. Answer Explanation: The answer means that Paul Krugman believes very tough spending cuts have resulted in economic downturns for certain countries. Reason For Correctness: The correct answer is B because the passage explains Paul Krugman's view on countries that applied strict spending cuts. He observes that nations implementing severe austerity (described as "savage spending cuts") suffered an economic downturn (referred to as "a slump"). Therefore, "savage spending cuts" matches "harsh austerity measures", and "slump" corresponds to "decline". |