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 Question 1
Crinoline and croquet are out. As yet, no political activists have thrown themselves in front of the royal horse on Derby Day. Even so, some historians can spot the parallels. It is a time of rapid technological change. It is a period when the dominance of the world's superpower is coming under threat. It is an epoch when prosperity masks underlying economic strain. And, crucially, it is a time when policy-makers are confident that all is for the best in the best of all possible worlds. Welcome to the Edwardian Summer of the second age of globalisation. Spare a moment to take stock of what's been happening in the past few months. Let's start with the oil price, which has rocketed to more than $65 a barrel, more than double its level 18 months ago. The accepted wisdom is that we shouldn't worry our little heads about that, because the incentives are there for business to build new production and refining capacity, which will effortlessly bring demand and supply back into balance and bring crude prices back to$25 a barrel. As Tommy Copper used to say, 'just like that'. Then there is the result of the French referendum on the European Constitution, seen as thick-headed luddites railing vainly against the modern world. What the French needed to realize, the argument went, was that there was no alternative to the reforms that would make the country more flexible, more competitive, more dynamic. Just the sort of reforms that allowed Gate Gourmet to sack hundreds of its staff at Heathrow after the sort of ultimatum that used to be handed out by Victorian mill owners. An alternative way of looking at the French "non" is that our neighbours translate "flexibility" as "you're fired".

Finally, take a squint at the United States. Just like Britain a century ago, a period of unquestioned superiority is drawing to a close. China is still a long way from matching America's wealth, but it is growing at a stupendous rate and economic strength brings geo-political clout. Already, there is evidence of a new scramble for Africa as Washington and Beijing compete for oil stocks. Moreover, beneath the surface of the US economy, all is not well. Growth looks healthy enough, but the competition from China and elsewhere has meant the world's biggest economy now imports far more than it exports. The US is living beyond its means, but in this time of studied complacency a current account deficit worth 6 perfect of gross domestic product is seen as a sign of strength, not weakness.

In this new Edwardian summer, comfort is taken from the fact that dearer oil has not had the savage inflationary consequences of 1973-1974, when a fourfold increase in the cost of crude brought an abrupt end to a postwar boom that had gone on uninterrupted for a quarter of a century. True, the cost of living has been affected by higher transport costs, but we are talking of inflation at 2.3 per cent and not 27 per cent. Yet the idea that higher oil prices are of little consequence is fanciful. If people are paying more to fill up their cars it leaves them with less to spend on everything else, but there is a reluctance to consume less. In the 1970s unions were strong and able to negotiate large, compensatory pay deals that served to intensify inflationary pressure. In 2005, that avenue is pretty much closed off, but the abolition of all the controls on credit that existed in the 1970s means that households are invited to borrow more rather than consume less. The knock-on effects of higher oil prices are thus felt in different ways - through high levels of indebtedness, in inflated asset prices, and in balance of payments deficits.

There are those who point out, rightly, that modern industrial capitalism has proved mightily resilient these past 250 years, and that a sign of the enduring strength of the system has been the way it apparently shrugged off everything - a stock market crash, 9/11, rising oil prices - that have been thrown at it in the half decade since the millennium. Even so, there are at least three reasons for concern. First, we have been here before. In terms of political economy, the first era of globalisation mirrored our own. There was a belief in unfettered capital flows, in free migration. Eventually, though, there was a backlash, manifested in a struggle between free traders and protectionists, and in rising labour militancy.

Second, the world is traditionally as its most fragile at times when the global balance of power is in flux. By the end of the nineteenth century, Britain's role as the hegemonic power was being challenged by the rise of the United States, Germany, and Japan while the Ottoman and Hapsburg empires were clearly in rapid decline. Looking ahead from 2005, it is clear that over the next two or three decades, both China and India - which together account for half the world's population - will flex their muscles.

Finally, there is the question of what rising oil prices tell us. The emergence of China and India means global demand for crude is likely to remain high at a time when experts say production is about to top out. If supply constraints start to bite, any decline in the prices is likely to be short-term cyclical affairs punctuating a long upward trend.

By the expression 'Edwardian Summer', the author refers to a period in which there is

 A unparalleled luxury and opulence B a sense of complacency among people because of all-round prosperity C a culmination of all-round economic prosperity D an imminent danger lurking behind economic prosperity

Question 1 Explanation:
Refer to the line from paragraph 1: "And, crucially, it is a time when policy-makers are confident that all is for the best in the best of all possible worlds. Welcome to the Edwardian Summer of the second age of globalization". This helps us identify option B as the right answer.
 Question 2
What, according to the author, has resulted in a widespread belief in the resilience of modern capitalism?
 A Growth in the economies of Western countries despite shocks in the form of increase in levels of indebtedness and inflated asset prices B Increase in the prosperity of Western countries and China despite rising oil prices C Continued growth of Western economies despite a rise in terrorism, an increase in oil prices and other similar shocks D The success of continued reforms aimed at making Western economies more dynamic, competitive and efficient

Question 2 Explanation:
Refer to the lines from paragraph 6: "There are those who point out, rightly, that modern industrial capitalism has proved mightily resilient these past 250 years, and that a sign of the enduring strength of the system has been the way it apparently shrugged off everything - a stock market crash, 9/11, rising oil prices - that have been thrown at it in the half decade since the millennium." This helps us identify option C as the right answer.
 Question 3
Which of the following best represents the key argument made by the author?
 A The rise in oil prices, the flux in the global balance of power and historical precedents should make us question our belief that the global economic prosperity would continue B The belief that modern industrial capitalism is highly resilient and capable of overcoming shocks will be belied soon C Widespread prosperity leads to neglect of early signs of underlying economic weakness, manifested in higher oil prices and a flux in the global balance of power D A crisis is imminent in the West given the growth of countries like China and India and the increase in oil prices

Question 3 Explanation:
Option (B) is too narrow in its scope. Option (C) is too wide in its scope; it is too generic in nature. Also, the rise in oil prices represents one the author's key argument and helps support his view that we need to question our belief that the global economic prosperity would continue.
 Question 4
What can be inferred about the author's view when he states 'As Tommy Cooper used to say "just like that"?
 A Industry has incentives to build new production and refining capacity and therefore oil prices would reduce B There would be a correction in the price levels of oil once new production capacity is added C The decline in oil prices is likely to be short-term in nature D It is not necessary that oil prices would go down to earlier levels

Question 4 Explanation:
Refer to the lines: The accepted wisdom is that we shouldn't worry our little heads about that, because the incentives are there for business to build new production and refining capacity, which will effortlessly bring demand and supply back into balance and bring crude prices back to \$25 a barrel. As Tommy Copper used to say, 'just like that'. The key thing in this question is that you need to make an inference about the author's view and not Tommy Cooper's. The sarcasm in the author's statement can be clearly seen and therefore, we can identify option (D) as the correct answer. Option (D) implies that the situation given in the extract above might not necessarily be correct.
There are 4 questions to complete.