READING COMPREHENSION

I. Reading Comprehension Introduction

1. Overview
The GMAT presents Reading Comprehension questions on a split screen. On the left side is
the passage: it will have a scroll bar if it’s long. On the right side, one question at a time will
appear. You will always be able to see the passage in its entirety, but you can only see one
question at a time.

“Short” Reading Comprehension passages on the GMAT are typically 200-250 words long
and usually have 3 questions. “Long” RC passages are typically 300-350 words and usually
have 4 questions. A GMAT Verbal section often has 3 Short RC passages and 1 Long RC
passage, although in rare instances it could have two of each.
2. Three elements that make RC difficult
(1) Topics of passages are boring
- Natural sciences (astronomy, biology, etc.)
- Social sciences (philosophy, history, etc.)
- Business-related (business history, economic theory, etc.)
(2) The passages are wall of text with complex sentence structures. The answers for questions
are not in order in the passages.
(3) Reading time is limited. Also, you cannot afford to skip an entire passage.
3. Suggested time frame
- Reading passages: 3 minutes for short passages and 4 minutes for long passages
- Answer questions: 45 seconds to 1 minute for abstract questions and 1.25 to 1.5 minutes for
specific questions

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II. Two extreme approaches
There are two extreme approaches to a GMAT reading passage.

On one pole, the first method can be called “scholar”, in which readers attempt to read
thoroughly every words and try to grasp the meaning of each sentence as specific as possible.
Of course, once the readers understand every bit of information, answering questions related
to the passage would be a piece of cake. However, this approach may be not as fruitful as it
might sound because of two reasons:

● We cannot safely assume that we can catch on ALL details within ANY passage.
Thus, in many cases, pursuing comprehensive understanding might cause exhaustion
and tire your mental function out.
● Understanding all information is UNNECCESARY, because the creators of the test
frequently insert a huge amount of redundant details and “filler” data. As a result,
time spent to drill these minor details is surely wasted.

In short, unless you are already a skilled reader who has considerable exposure to advanced
reading material, do not employ the “scholar” approach.

On other pole, the second strategy, namely “hunter”, might be familiar with many test-takers.
As its name may suggest, this “hunter” approach focus mainly on the questions and orient the
responses based on the process of locating specific information. At first glance, this strategy
might save time reading texts and answering questions, but in reality, in most case, it shows
two serious limits:

● Candidates who follow this method usually struggle dealing with more “abstract”
questions about the main idea or structure of the text. Unlike IELTS exam, GMAT
includes much more “abstract” problems, which means you cannot depend solely on
scanning for particular details.
● Even in ideal cases of this approach, questions directing to a specific detail are not
necessarily a mere scanning problems. In fact, sometimes these questions ask about
the PURPOSE or ROLE of this information regarding overall structure of passages,
not about the characteristic of it. Thus, “hunter” skill is inadequate, or even useless, to
solve these issues.
In balance between these above approach, “structure-based” strategy is a sound method,
which helps you grasp overall structure of passages in a reasonable time (about 3 to 4 minutes
per article). With the understanding about the structure, you can answer abstract questions
easily and tackle detailed problems by quickly locating information within a wall of text.

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III. “Structure-based” Approach Methodology

“Structure-based” approach concerns two major features: (1) core information of each single
sentence, and (2) relationship among sentences

1. Core information of each single sentence

To grasp main idea of each sentence, you simply adhere to the “Subject – Verb agreement”
rule, which was mentioned earlier in first Sentence Correction session. According to this
principle, you should ignore insignificant details such as dependent clause, example, or
comparison. You might need to re-read those portions when a question targets them, but in
first reading, neglect them and simply take a note (using abbreviation) for future use.

Note: Although in many cases you need to identify the subject(s) and the verb(s) only,
sometimes you have to read beyond these components (quite frequently, taking in to account
object(s) of a sentence or an essential modifier that is vital to understand a sentence).

2. Relationship among sentences

As you jot down the note for sentences within a passage, you also have to pay close attention
to the LINKING between them. If you only focus on the meaning of each single sentence
without considering the UNDERLYING RELATIONSHIP among them, you will soon lose
the flow of the passage, forget previous sentences, and exhaust yourself attempting to read
and remember too many separated pieces of information.

Specifically speaking, we can identify the relationship among sentences within a GMAT
passages by noticing the several types of linking devices:

(a) Transition signal might be the most familiar and most used linking device. Fortunately, in
GMAT Reading passage, almost all transition signals are common, uncomplicated, and
crystal clear. Whenever such a signal appears, you should note it down, think about the
relationship it conveys, and make sure that relationship makes sense to you before moving to
next sentence.

Keyword groups Example Priority

Contrast but, however, nevertheless, on the other hand High
Opinion belief, theory, hypothesis High
Evidence/Conclusion since, because, as High
therefore, hence
Sequence/Timing Listing: First, second, and third Medium
Chronological sequence: 17th century, 18th century,
and today
Grouping: in the north, in the south
Continuation moreover, also, furthermore Medium
Illustration for example, for instance, to illustrate Low

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(b) For key word(s) repetition, this is the most straight-forward and obvious way to maintain
the coherence in a passage: The author simply repeat key word(s), which also the main topic
of a passage, multiple times across the text. Keep in mind that the repetition of key word(s)
does not mean that the author lack vocabulary or synonyms to express the same idea, he or
she just want to guarantee that the readers can follow the topic till the end of text.

Sometimes, key word(s) are mentioned through reference, a lexical item that cites something
or somebody else mentioned before. Some prevalent reference items are pronouns such as he,
she, it, they, this, that, these, those, or certain words/phrases such as such, do so, there. As a
ground rule, whenever you encounter a reference, ask yourself whether you acknowledge
firmly which object it refers to, and move on only when you can identify that object
Find the repeated keywords in the below paragraph:

The early trading companies did differ strikingly from modern multinationals
in many respects. They depended heavily on the national governments of
their home countries and thus characteristically acted abroad to promote
national interests. Their top managers were typically owners with a
substantial minority share, whereas senior managers' holdings in modern
multinationals are usually insignificant. They operated in a pre-industrial
world, grafting a system of capitalist international trade onto a pre-modern
system of artisan and peasant production. Despite these differences,
however, early trading companies organized effectively in remarkably modern
ways and merit further study as analogues of more modern structures.

(c) Logical flow is a gentler and more elegant way of connecting ideas. Academic writing
suggests that if the progress of ideas within a paragraph is already transparent, the use of
transition signal might be needless. If no signal, key word, or reference present at the
beginning of a sentence, try to determine the logical connection between this sentence with
the preceding one.

3. Output after reading the passage

After reading a passage, you should be able to identify 3 aspects:
(1) Passage map (in the form of a note)
(2) Topic & Scope
(3) Tone: Neutral/ Positive/ Negative with the topic

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IV. Question types
Two works published in 1984 demonstrate contrasting approaches to writing the history of
United States women. Buel and Buel’s biography of Mary Fish (1736–1818) makes little effort
to place her story in the context of recent historiography on women. Lebsock, meanwhile,
attempts not only to write the history of women in one southern community, but also to
redirect two decades of historiographical debate as to whether women gained or lost status
in the nineteenth century as compared with the eighteenth century. Although both books offer
the reader the opportunity to assess this controversy regarding women’s status, only Lebsock’s
deals with it directly. She examines several different aspects of women’s status, helping to
refine and resolve the issues. She concludes that while women gained autonomy in some
areas, especially in the private sphere, they lost it in many aspects of the economic sphere.
More importantly, she shows that the debate itself depends on frame of reference: in many
respects, women lost power in relation to men, for example, as certain jobs (delivering babies,
supervising schools) were taken over by men. Yet women also gained power in comparison
with their previous status, owning a higher proportion of real estate, for example. In contrast,
Buel and Buel’s biography provides ample raw material for questioning the myth, fostered by
some historians, of a colonial golden age in the eighteenth century but does not give the
reader much guidance in analyzing the controversy over women’s status.

1. Abstract Questions
Approach: Use passage map to answer
a. Universal Questions
Any question that explicitly asks you to consider the passage as a whole is a Universal question:
 Which of the following best expresses the main idea of the passage?
 The author’s primary purpose is to ...
 Which of the following best describes the organization of the passage?

Question 1. The primary purpose of the passage is to

(A) examine two sides of a historiographical debate

(B) call into question an author's approach to a historiographical debate

(C) examine one author’s approach to a historiographical debate

(D) discuss two authors’ works in relationship to a historiographical debate

(E) explain the prevalent perspective on a historiographical debate

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b. Structure Questions
These question asks about the logical structure of a passage or the use/meaning of a particular
word or phrase.
Here are some sample Structure question stems:
 The author cites ______, in order to?
 The _____ in the passage has been used by the author to?
 Which of the following best describes the reason the author ____?
 In the passage, the phrase _____ refers to
 In the sentence, _______, what is the meaning of ___?

Question 2. The author of the passage mentions the supervision of schools in order to

(A) remind readers of the role education played in the cultural changes of the nineteenth
century in the United States

(B) suggest an area in which nineteenth-century American women were relatively free to
exercise power

(C) provide an example of an occupation for which accurate data about women's
participation are difficult to obtain

(D) speculate about which occupations were considered suitable for United States women of
the nineteenth century

(E) illustrate how the answers to questions about women's status depend on particular
contexts

2. Specific Questions
Approach: Follow 4-step process
(1) Read the question
(2) Use the Passage Map to locate the relevant text
(3) Read that portion of the passage carefully
(4) Answer the question.

a. Detail Questions
This type asks about details from the passage. The correct answer is often a paraphrase of
something directly stated in the passage.
Detail questions ask you to identify what the passage explicitly says:
 The author states which of the following about X?
 The author cites each of the following as influences on X EXCEPT….

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Question 3. With which of the following characterizations of Lebsock's contribution to the
controversy concerning women's status in the nineteenth-century United States would the
author of the passage be most likely to agree?

(A) Lebsock has studied women from a formerly neglected region and time period.

(B) Lebsock has demonstrated the importance of frame of reference in answering questions
about women’s status.

(C) Lebsock has addressed the controversy by using women’s current status as a frame of
reference

(D) Lebsock has analyzed statistics about occupations and property that were previously
ignored.

(E) Lebsock has applied recent historiographical methods to the biography of a nineteenth-
century woman.

Question 4. According to the passage, Lebsock's work differs from Buel and Buel’s work in
that Lebsock's work

(A) uses a large number of primary sources

(B) ignores issues of women’s legal status

(C) refuses to take a position on women’s status in the eighteenth century

(D) addresses larger historiographical issues

(E) fails to provide sufficient material to support its claims

b. Inference Questions
Inference questions require you to understand what is implied by but not necessarily stated in
the passage. The correct answer may rely on subtle phrases from the passage and be hard to
find/less obvious than Specific questions
Here are some sample Inference question stems:
 Which of the following is suggested about X?
 Which of the following can be most reasonably inferred from the passage?
 The author would most likely agree that ...

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Question 5. The passage suggests that Lebsock believes that compared to nineteenth-century
American women, eighteenth-century American women were

(A) in many respects less powerful in relation to men

(B) more likely to own real estate

(C) generally more economically independent

(D) more independent in conducting their private lives

(E) less likely to work as school superintendents

Question 6. The passage suggests that Buel and Buel’s biography of Mary Fish provides
evidence for which of the following views of women's history?

(A) Women have lost power in relation to men since the colonial era.

(B) Women of the colonial era were not as likely to be concerned with their status as were
women in the nineteenth century.

(C) The colonial era was not as favorable for women as some historians have believed.

(D) Women had more economic autonomy in the colonial era than in the nineteenth century

(E) Women’s occupations were generally more respected in the colonial era than in the
nineteenth century.

3. Other Questions
a. “Critical Reasoning” Questions
Occasionally in RC, you might find a question that seems more like one of the common
Critical Reasoning question types, such as an Assumption, Strengthen, Weaken, or Flaw
question. The approach for these questions is similar to the approach for Critical Reasoning.
b. Parallelism Questions
These questions ask you to take the ideas in a passage and apply them through analogy to a
new situation. In this case, the correct answer will describe a scenario that is logically similar
to the one in the passage.
c. Application Questions
This is a slightly more specific type of inference question, where you’re asking to choose an
answer which mimics a process or exemplifies a situation described in the passage.
 Which of the following could be used to replace_______?
 A _____, as conceptualized in the passage, can best be described as____
 Which of the following best illustrates the situation ____

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Passage 1 1. The primary purpose of the passage is to
(A) question the notion that customer loyalty
Customer loyalty programs are attempts to bond programs are beneficial
customers to a company and its products and (B) examine the reasons why many customers buy
services by offering incentives—such as airline multiple brands of products
frequent flyer programs or special credit cards with (C) propose some possible alternatives to customer
valuable benefits-to loyal customers. In support of loyalty programs
loyalty programs, companies often invoke the (D) demonstrate that most customers are not
“80/20” principle, which states that about 80 completely loyal to any one brand of product or
percent of revenue typically comes from only about service
20 percent of customers. However, this profitable (E) compare the benefits of customer loyalty
20 percent are not necessarily loyal buyers, programs with those of other types of purchase
especially in the sense of exclusive loyalty. Studies incentive programs
have demonstrated that only about 10 percent of
buyers for many types of frequently purchased 2. The passage mentions each of the following as a
consumer goods are 100 percent loyal to a potential reason for customers' divided loyalty
particular brand over a one-year period. Moreover, EXCEPT
100-percent-loyal buyers tend to be light buyers of (A) A particular brand may be the only one
the product or service. “Divided loyalty” better available
describes actual consumer behavior, since (B) A particular brand may be offered at a discount
customers typically vary the brands they buy. The (C) Customers will often buy multiple brands out of
reasons for this behavior are fairly straightforward: a desire for variety
people buy different brands for different occasions (D) Customers will often buy a unfamiliar brand
or for variety, or a brand may be the only one in when it is new on the market
stock or may offer better value because of a special (E) Customers will often buy certain brands for
deal. Most buyers who change brands are not lost certain occasions
forever; usually, they are heavy consumers who
simply prefer to buy a number of brands. Such 3. According to the passage, advocates of the
multi-brand loyalty means that one company’s most customer loyalty programs claim which of the
profitable customers will probably be its following about highly loyal customers?
competitors’ most profitable customers as well. (A) They often expect price discounts a reward for
their loyalty to the product
Still, advocates of loyalty programs contend that (B) They can be served at lower expense to a
such programs are beneficial because the costs of company than nonloyal customers
serving highly loyal customers are lower, and (C) They tend to be light but predictable buyers of
because such loyal customers are less price the product or service in question
sensitive than other customers. It is true that when (D) They are unlikely to try out new brands or
there are start-up costs, such as credit checks, products that appear on the market
involved in serving a new customer, the costs (E) They are difficult to differentiate statistically
exceed those of serving a repeat customer. from other types of repeat customers
However, it is not at all clear why the costs of
serving a highly loyal customer should in principle 4. The second paragraph functions primarily to
be different from those of serving any other type of (A) propose solutions to certain problems inherent
repeat customer. The key variables driving cost are in customer loyalty programs.
size and type of order, special versus standard (B) emphasize certain risks inherent in customer
order, and so on, not high-loyalty versus divided- loyalty programs.
loyalty customers. As for price sensitivity, highly (C) address certain contentions put forth by
loyal customers may in fact come to expect a price advocates of customer loyalty programs.
discount as a reward for their loyalty. (D) defend certain specific aspects of customer
loyalty programs against criticism.
(E) reconcile competing view points regarding the
efficacy of customer loyalty program.

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Passage 2 1. According to the passage, which of the following
may account for the inconsistency between the
The general density dependence model can be general density dependence model and the
applied to explain the founding of specialist firms evidence provided by certain studies of foundings?
(those attempting to serve a narrow target market). (A) Such studies have overemphasized the impact
According to this model, specialist foundings hinge of preexisting firms on the establishment of new
on the interplay between legitimation and firms.
competitive forces, both of which are functions of (B) Such studies have not focused strongly enough
the density (total number) of firms in a particular on the role of competition among newly established
specialist population. Legitimation occurs as a new firms operating at the city and state levels.
type of firm moves from being viewed as unfamiliar (C) Such studies fail to differentiate among
to being viewed as a natural way to organize. At specialist firms with regard to the degree to which
low density levels, each founding increases they deviate from familiar forms of organization.
legitimation, reducing barriers to entry and easing (D) Such studies have not taken into account the
subsequent foundings. Competition occurs because fact that many industries are internationally
the resources that firms seek--customers, suppliers, integrated.
and employees--are limited, but as long as density (E) Such studies have neglected to investigate
is low relative to plentiful resources, the addition of firms that attempt to serve only a narrow target
another firm has a negligible impact on the intensity market.
of competition. At high density levels, however,
competitive effects outweigh legitimation effects, 2. In the second paragraph, the author is primarily
discouraging foundings. The more numerous the concerned with
competitors, the fiercer the competition will be and (A) noting various exceptions to a certain general
the smaller will be the incentive for new firms to finding
enter the field. (B) examining the impact of one type of industry
on another
While several studies have found a significant (C) proposing a possible explanation for an
correspondence between the density dependence inconsistency
model and actual patterns of foundings, other (D) providing specific examples of a particular
studies have found patterns not consistent with the phenomenon
model. A possible explanation for this inconsistency (E) defending the validity of a particular study's
is that legitimation and competitive forces transcend conclusions
national boundaries, while studies typically restrict
their analysis to the national level. Thus a national- 3. The passage suggests that when a population of
level analysis can understate the true legitimation specialist firms reaches a high density level, which
and competitive forces as well as the number of of the following is likely to occur?
foundings in an industry that is internationally (A) Foundings will decline despite legitimation that
integrated. Many industries are or are becoming has occurred in these industries.
international, and since media and information (B) Increasing competition will encourage many
easily cross national borders, so should legitimation firms to broaden their target market.
and its effects on overseas foundings. For example, (C) Competition for resources will become stabilized
if a type of firm becomes established in the United and thus foundings will be encouraged.
States, that information transcends borders, (D) Many customers will abandon their loyalty to
reduces uncertainties, and helps foundings of that older firms as more innovative firms enter the
type of firm in other countries. Even within national market.
contexts, studies have found more support for the (E) Firms will begin to cross national borders in an
density dependence model when they employ attempt to gain a competitive advantage.
broader geographic units of analysis--for example,
finding that the model's operation is seen more 4. The primary purpose of the passage is to
clearly at the state and national levels than at city (A) question the validity of an economic model
levels. (B) point out some inconsistencies within an
economic model
(C) outline an economic model and suggest
revisions to it
(D) describe an economic model and provide
specific examples to illustrate its use
(E) explain why an economic model remains valid
despite inconsistent research results

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Passage 3 1. The primary purpose of the passage is to
(A) explain and critique the methods used by early
During the nineteenth century, occupational statisticians
information about women that was provided by the (B) compare and contrast a historical situation with
United States census—a population count a current-day one
conducted each decade—became more detailed and (C) describe and explain a historical change
precise in response to social changes. Through (D) discuss historical opposition to an established
1840, simple enumeration by household mirrored a institution
home-based agricultural economy and hierarchical (E) trace the origin of a contemporary controversy
social order: the head of the household (presumed
male or absent) was specified by name, whereas 2. Each of the following aspects of nineteenth-
other household members were only indicated by century United States censuses is mentioned in the
the total number of persons counted in various passage EXCEPT the
categories, including occupational categories. Like (A) year in which data on occupations began to be
farms, most enterprises were family-run, so that the analyzed by gender
census measured economic activity as an attribute (B) year in which specific information began to be
of the entire household, rather than of individuals. collected on individuals in addition to the head of
the household
The 1850 census, partly responding to antislavery (C) year in which overlap between women
and women's rights movements, initiated the employed outside the home and women keeping
collection of specific information about each house was first calculated
individual in a household. Not until 1870 was (D) way in which the 1890 census measured
occupational information analyzed by gender: the women’s income levels and educational
census superintendent reported 1.8 million women backgrounds
employed outside the home in "gainful and (E) way in which household members were counted
reputable occupations." In addition, he arbitrarily in the 1840 census
attributed to each family one woman "keeping
house." Overlap between the two groups was not 3. The passage suggests which of the following
calculated until 1890, when the rapid entry of about the “women’s advocates and women
women into the paid labor force and social issues statisticians” mentioned in highlighted text?
arising from industrialization were causing women's (A) They wanted to call attention to the lack of pay
advocates and women statisticians to press for for women who worked in the home.
more thorough and accurate accounting of women's (B) They believed that previous census information
occupations and wages. was inadequate and did not reflect certain
economic changes in the United States.
(C) They had begun to press for changes in census-
taking methods as part of their participation in the
antislavery movement.
(D) They thought that census statistics about
women would be more accurate if more women
were employed as census officials.
(E) They had conducted independent studies that
disputed the official statistics provided by previous
United States censuses.

4. The author uses the adjective “simple” in

highlighted text most probably to emphasize that
(A) collection of census information became
progressively more difficult throughout the
nineteenth-century
(B) technology for tabulating census information
was rudimentary during the first half of the
nineteenth century
(C) home-based agricultural economy of the early
nineteenth century was easier to analyze than the
later industrial economy
(D) economic role of women was better defined in
the early nineteenth century than in the late
nineteenth century
(E) information collected by early-nineteen-century
censuses was limited in its amount of detail

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Passage 4 1. It can be inferred from the passage that
geologists today would be most likely to agree with
Years before the advent of plate tectonics―the which of the following statements about Wegener’s
widely accepted theory, developed in the mid- The Origin of Continents and Oceans?
1960's, the holds that the major features of Earth's (A) It was a worthy scientific effort that was ahead
surface are created by the horizontal motions of of its time.
Earth's outer shell, or lithosphere―a similar theory (B) It was based on evidence that was later
was rejected by the geological community. In 1912, disproved.
Alfred Wegener proposed, in a widely debated (C) It was directly responsible for the acceptance of
theory that came to be called continental drift, that the theory of plate tectonics.
Earth's continents were mobile. To most geologists (D) It has been disproved by continental drift
today, Wegener's The origin of Continents and theory.
Oceans appears an impressive and prescient (E) It misrepresented how horizontal displacements
document, containing several of the essential cause the formation of mountain chains.
presumptions underlying plate tectonics theory: the
horizontal mobility of pieces of Earth's crust; the 2. The author of the passage suggests that the
essential difference between oceanic and most likely explanation for the geological
continental crust; and a causal connection between community’s response to continental drift theory in
horizontal displacements and the formation of its day was that the theory
mountain chains. Yet despite the considerable (A) was in conflict with certain aspects of plate
overlap between Wegener's concepts and the later tectonics theory
widely embraced plate tectonics theory, and despite (B) failed to account for how mountains were
the fact that continental drift theory presented a formed
possible solution to the problem of the origin of (C) did not adequately explain how continents
mountains at a time when existing explanations moved through the ocean floor
were seriously in doubt, in its day Wegener's theory (D) was contradicted by the geophysical data of the
was rejected by the vast majority of geologists. time
(E) was based on a kind of evidence that was
Most geologists and many historians today believe considered insufficiently convincing
that Wegener's theory was rejected because of its
lack of an adequate mechanical basis. Stephen Jay 3. The author of the passage refers to the
Gould, for example, argues that continental drift "considerable overlap" between continental drift
theory was rejected because it did not explain how theory and plate tectonics theory most probably in
continents could move through an apparently solid order to
oceanic floor. However, as Anthony Hallam has (A) suggest that plate tectonics theory is derived
pointed out, many scientific phenomena, such as from Wegener’s work
the ice ages, have been accepted before they could (B) introduce a discussion comparing the elements
be fully explained. The most likely cause for the of the two theories
rejection of continental drift―a cause that has been (C) examine the question of whether continental
largely ignored because we consider Wegener's drift theory was innovative in its time
theory to have been validated by the theory of plate (D) provide a reason why it might seem surprising
tectonics―is the nature of the evidence that was that continental drift theory was not more widely
put forward to support it. Most of Wegener's embraced by geologists
evidence consisted of homologies―similarities of (E) cite an explanation that has been frequently
patterns and forms based on direct observations of offered for Wegener’s high standing among
rocks in the field, supported by the use of hammers, geologists today
hand lenses, and field notebooks. In contrast, the
data supporting plate tectonics were impressively 5. The author cites Hallam on the ice ages to
geophysical―instrumental determinations of the (A) provide an example of a geologic phenomenon
physical properties of Earth garnered through the whose precise causes are not fully understood by
use of seismographs, magnetometers, and geologists today
computers. (B) criticize the geological community for an
apparent lack of consistency in its responses to
new theories
(C) offer evidence held to undermine a common
view of why Wegener’s theory was not accepted in
its day
(D) give an example of a modern scientist who
believes that Wegener’s theory was rejected
because it failed to adequately explain the
mechanical basis of continental drift
(E) support Gould’s rationale for why Wegener’s
theory was rejected by most geologists in the early
twentieth century

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Passage 5 1. The author's main point is that
(A) modern multinationals originated in the
The modern multinational corporation is described sixteenth and seventeenth centuries with the
as having originated when the owner-managers of establishment of chartered trading companies
nineteenth-century British firms carrying on (B) the success of early chartered trading
international trade were replaced by teams of companies, like that of modern multinationals,
salaried managers organized into hierarchies. depended primarily on their ability to carry out
Increases in the volume of transactions in such complex operations
firms are commonly believed to have necessitated (C) early chartered trading companies should be
this structural change. Nineteenth-century more seriously considered by scholars studying the
inventions like the steamship and the telegraph, by origins of modern multinationals
facilitating coordination of managerial activities, are (D) scholars are quite mistaken concerning the
described as key factors. Sixteenth- and origins of modern multinationals
seventeenth century chartered trading companies, (E) the management structures of early chartered
despite the international scope of their activities, trading companies are fundamentally the same as
are usually considered irrelevant to this discussion: those of modern multinationals
the volume of their transactions is assumed to have
been too low and the communications and transport 2. With which of the following generalizations
of their day too primitive to make comparisons with regarding management structures would the author
modern multinationals interesting. of the passage most probably agree?
(A) Hierarchical management structures are the
In reality, however, early trading companies most efficient management structures possible in a
successfully purchased and outfitted ships, built and modern context.
operated offices and warehouses, manufactured (B) Firms that routinely have a high volume of
trade goods for use abroad, maintained trading business transactions find it necessary to adopt
posts and production facilities overseas, procured hierarchical management structures.
goods for import, and sold those goods both at (C) Hierarchical management structures cannot be
home and in other countries. The large volume of successfully implemented without modern
transactions associated with these activities seems communications and transportation.
to have necessitated hierarchical management (D) Modern multinational firms with a relatively
structures well before the advent of modern small volume of business transactions usually do
communications and transportation. For example, in not have hierarchically organized management
the Hudson's Bay Company, each far-flung trading structures.
outpost was managed by a salaried agent, who (E) Companies that adopt hierarchical management
carried out the trade with the Native Americans, structures usually do so in order to facilitate
managed day-to-day operations, and oversaw the expansion into foreign trade.
post's workers and servants. One chief agent,
answerable to the Court of Directors in London 3. The passage suggests that modern
through the correspondence committee, was multinationals differ from early chartered trading
appointed with control over all of the agents on the companies in that
bay. (A) the top managers of modern multinationals
own stock in their own companies rather than
The early trading companies did differ strikingly simply receiving a salary
from modern multinationals in many respects. They (B) modern multinationals depend on a system of
depended heavily on the national governments of capitalist international trade rather than on less
their home countries and thus characteristically modern trading systems
acted abroad to promote national interests. Their (C) modern multinationals have operations in a
top managers were typically owners with a number of different foreign countries rather than
substantial minority share, whereas senior merely in one or two
managers' holdings in modern multinationals are (D) the operations of modern multinationals are
usually insignificant. They operated in a pre- highly profitable despite the more stringent
industrial world, grafting a system of capitalist environmental and safety regulations of modern
international trade onto a pre-modern system of governments
artisan and peasant production. Despite these (E) the overseas operations of modern
differences, however, early trading companies multinationals are not governed by the national
organized effectively in remarkably modern ways interests of their home countries
and merit further study as analogues of more
modern structures.

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