Critical Reasoning

Public hospitals are suffering because of a lack of money available for physical expansion projects. To help hospitals, local governments plan to offer municipal bonds with higher interest rates to induce individuals to buy these bonds, because as local governments get more money from municipal bonds, more money becomes available to public hospitals for physical expansion projects.

Which of the following, if true, raises the most serious doubt regarding the effectiveness of local governments' plan to increase the amount of money available for hospital expansion projects?


(A) When local governments increase the interest on municipal bonds, the percentage of government funds allocated to non-expansion government projects increases correspondingly.

(B) The increased revenue local governments would receive as a result of offering municipal bonds with above-average interest rates would not offset the loss in revenue from personal income taxes during the first year of the plan.

(C) Even with interest rate incentives, some people will choose not to buy the municipal bonds.

(D) Individuals will generally not buy high-interest municipal bonds unless these bonds, when repaid, will help them cover home and healthcare payments.

(E) The municipal bonds would give all buyers, regardless of how many bonds they purchase, the same interest rate per bond.

Is it A?

IMO A
I am eager to know the OA.

This situation can be seen as a circular event. Govt gives bonds to Hospitals on high rates ---> Hospital repay in form of money due to high return rates from its bond holders. So, Line of reasoning is that more money is available with Govt again to invest in hospitals . IF we show that for some reason money is not available with Govt , the argument will fall apart.

A) non-expansion government projects will incur more money. That means govt will run out of money and its not available for investment in hospitals anymore.
B) It says interest rates would not offset the loss in revenue from personal income taxes during the first year of the plan. what if second year could be profitable?
C)some people will choose not to buy the municipal bonds ---Some will buy too.
D) possibilities are present that Individuals will buy high-interest municipal bonds. Supporter answer choice.
E) No impact on whether money will be available for re investment.

IMO A

B limits the scope to a year.We need most serious doubt regarding the effectiveness of local government. What if the plan work out well from second year?

C, Looks ok but i think A fares better than C, Bcoz the increase in funds from increased interest rates is compensated by increase in non-expansion government projects. Hence we cannot allocate those extra funds to hospital expansion projects.

I guess my line of reasoning was correct but I selected a wrong answer initially.

option A makes sense

What is the source ?

None of the answers seems relevant.

D seems to be the most appropriate answer.

A states that the percentage of funds allocated to non expansion projects increases. This does not necessarily mean that a larger chunk of government funds are allocated to non-expansion projects.

OA plz.

atulmangal wrote:Public hospitals are suffering because of a lack of money available for physical expansion projects. To help hospitals, local governments plan to offer municipal bonds with higher interest rates to induce individuals to buy these bonds, because as local governments get more money from municipal bonds, more money becomes available to public hospitals for physical expansion projects.

Which of the following, if true, raises the most serious doubt regarding the effectiveness of local governments' plan to increase the amount of money available for hospital expansion projects?


(A) When local governments increase the interest on municipal bonds, the percentage of government funds allocated to non-expansion government projects increases correspondingly.

(B) The increased revenue local governments would receive as a result of offering municipal bonds with above-average interest rates would not offset the loss in revenue from personal income taxes during the first year of the plan.

(C) Even with interest rate incentives, some people will choose not to buy the municipal bonds.

(D) Individuals will generally not buy high-interest municipal bonds unless these bonds, when repaid, will help them cover home and healthcare payments.

(E) The municipal bonds would give all buyers, regardless of how many bonds they purchase, the same interest rate per bond.

I believe whoever wrote the question meant for the answer to be B, but failed to provide enough information for B to make complete sense. B says that the increased income from the bonds will not offset some loss in revenue from loss of income tax. The problem does not explain why that loss is incurred, which is the missing part of the reasoning, but if the selling of the bonds would somehow result in a loss in income tax (say, if the bonds were a tax deductible expense), and then selling these bonds would actually result in loss, rather than increase, in revenues. I think whoever wrote this question assumed that people somehow would understand this from their outside knowledge - something the GMAT will not require you to do. But none of the other answer choices have the "ring of truth" to them.

posting the source(in subject)with the question is a good idea Atul.

sorry guys, getting late in posting the OA.

OA is A and source is Knewton-prep....here is the given OE:

We're told that local governments plan to help fund hospital expansion projects by offering municipal bonds with higher interest rates, which encourage people to buy these bonds.

The author concludes that if more bonds are purchased, more money will in turn be available for hospital's physical expansion projects.

We're asked to weaken this argument. The local governments' plan supposes that the money invested in municipal bonds will be readily available to hospitals in the form of funds for physical expansion projects. Therefore, to undermine this argument, we need to identify a reason why money might not go to hospital expansion projects.

Choice A states that when local governments offer high-interest municipal bonds, the money given to other projects increases. If this were true, this undermines the assumption that more money will go to hospital expansion projects. Choice A is correct.

Choice B states that the increased money from municipal bonds would not offset the loss in revenue from personal income taxes during the first year of the plan. The goal of the plan is to increase the amount of money available as physical expansion funds for hospitals, so this point is irrelevant to the effectiveness of the plan.

Choice C states that even with interest rate incentives, some people will not purchase municipal bonds. The effectiveness of the plan would be determined not by what some people do, but by what most people do.

Choice D states that people will generally not buy municipal bonds which, when, repaid, do not yield enough money to help them pay significant personal expenses. The plan would increase the money available specifically for hospitals' physical expansion projects, not individuals' personal loans.

Choice E states that municipal bonds would give all buyers, regardless of how many bonds they buy, the same interest rate per bond. The universal interest rate does not affect the effectiveness of the plan.

Choice A is correct.

bblast wrote:posting the source(in subject)with the question is a good idea Atul.

@bblast,

Source is Knewton, i didn't posted the source intentionally...if u still wanna know why...i will pm u in that case.

atulmangal wrote:

bblast wrote:posting the source(in subject)with the question is a good idea Atul.

@bblast,

Source is Knewton, i didn't posted the source intentionally...if u still wanna know why...i will pm u in that case.

PM me also

ankurmit wrote:

atulmangal wrote:

bblast wrote:posting the source(in subject)with the question is a good idea Atul.

@bblast,

Source is Knewton, i didn't posted the source intentionally...if u still wanna know why...i will pm u in that case.

PM me also

seems like guys are more interested in questioning why i didn't posted the source, even after i mentioned the source now...