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OG12 Question 88 Reasoning

This topic has 1 expert reply and 4 member replies
GMATMadeEasy Legendary Member Default Avatar
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OG12 Question 88 Reasoning

Post Mon Apr 25, 2011 6:32 am
Elapsed Time: 00:00
  • Lap #[LAPCOUNT] ([LAPTIME])
    Businesses are suffering because of a lack of money available for development loans. To help businesses, the government plans to modify the income-tax structure in order to induce individual taxpayers to put a larger portion of their incomes into retirement savings accounts, because as more money is deposited in such accounts, more money becomes available to borrowers.
    Which of the following, if true, raises the most serious doubt regarding the effectiveness of the government's plan to increase the amount of money available for development loans for businesses?
    (A) When levels of personal retirement savings increase, consumer borrowing always increases
    correspondingly.
    (B) The increased tax revenue the government would receive as a result of business expansion would not offset the loss in revenue from personal income taxes during the first year of the plan.
    (C) Even with tax incentives, some people will choose not to increase their levels of retirement savings.
    (D) Bankers generally will not continue to lend money to businesses whose prospective earnings are
    insufficient to meet their loan repayment schedules.
    (E) The modified tax structure would give all taxpayers, regardless of their incomes, the same tax savings for a given increase in their retirement savings.

    OA is A;
    I have a question from Answer choice D. If Bankers do not continue to lend money to business whose prospective earnings are insufficient to meet their loan repayment schedules , wouldn't it be a hinderance to effectiveness of the plan.

    OG explanation says: The plan would increase the money available specifically for development loans, not existing loans. Where does the question distinguish whether it talks about existing loans or new loans and where does it says that the existing loan are not development loans ?

    The evidence that 'Businesses are suffering because of a lack of money available for development loans' does not help to answer the any of the above question.

    However, I am absolutely fine with the right answer choice and understand that that clearly attacks the line of reasoning on which the argument is based. But have issues understanding D and to understand on what basis it should be removed.

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    fitzgerald23 Master | Next Rank: 500 Posts Default Avatar
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    Post Mon Apr 25, 2011 6:54 am
    I dont like that explanation either. The real key to eliminating D lies in the passage. The conclusion is not about giving businesses more loans, it is about increasing the funds at a banks disposal. D does not cast doubt over the available funding. It casts doubt over what the bankers will do with the money, but that is a separate argument. It would still be available, the business just has to show sufficient profit making ability to get it.

    A is the only choice that casts doubt on the availability of money. If the borrower saves $100 to aviod taxes, but in turn borrows $100 to have the money to spend now then there will be no change in the amount of money available for the bank to loan out.

    Thanked by: gmattesttaker2
    GMATMadeEasy Legendary Member Default Avatar
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    Post Mon Apr 25, 2011 7:41 am
    @fitzgerald23
    Quote:
    The conclusion is not about giving businesses more loans, it is about increasing the funds at a banks disposal. D does not cast doubt over the available funding. It casts doubt over what the bankers will do with the money, but that is a separate argument.
    I agree with you but partially.Because increasing the funds to banks is one aspect,granted, but not the only one.We can weaken it in different ways.

    This is a plan type question
    Goal: To provide more funds to the banks for development loan
    Plan: Reduce tax on savings ,resulting in more funds available to the banks

    The argument can be weakened if plan does not achieve it's goal.

    Answer choice A attacks the plan by showing one reason if true, will not result plan to work as INTENDED -- to increase available money for banks. FULLY AGREE.

    But an answer choice can ,definitely, weaken the argument if we could find a reason stating something that could lead to increased funds as intended but "what if banks do NOT pass this to the banks in need"; this could happen for many reasons: Imagine if a company needs to meet some stringent criteria to be eligible to get the loan; In that case plan is weakened as well.

    Answer choice 'D' is doing something of that sort , by showing that if a company can't pay its loan in future , it won't get loan'; in this situation, even if bank has money, companies might continue to suffer.

    mundasingh123 Legendary Member Default Avatar
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    Post Mon Apr 25, 2011 9:36 am
    There is no point contesting an OG OA

    _________________
    I Seek Explanations Not Answers

    Post Mon Apr 25, 2011 1:20 pm
    GMATMadeEasy wrote:
    Businesses are suffering because of a lack of money available for development loans. To help businesses, the government plans to modify the income-tax structure in order to induce individual taxpayers to put a larger portion of their incomes into retirement savings accounts, because as more money is deposited in such accounts, more money becomes available to borrowers.
    Which of the following, if true, raises the most serious doubt regarding the effectiveness of the government's plan to increase the amount of money available for development loans for businesses?

    (A) When levels of personal retirement savings increase, consumer borrowing always increases
    correspondingly.
    (B) The increased tax revenue the government would receive as a result of business expansion would not offset the loss in revenue from personal income taxes during the first year of the plan.
    (C) Even with tax incentives, some people will choose not to increase their levels of retirement savings.
    (D) Bankers generally will not continue to lend money to businesses whose prospective earnings are
    insufficient to meet their loan repayment schedules.
    (E) The modified tax structure would give all taxpayers, regardless of their incomes, the same tax savings for a given increase in their retirement savings.

    OA is A;
    I have a question from Answer choice D. If Bankers do not continue to lend money to business whose prospective earnings are insufficient to meet their loan repayment schedules , wouldn't it be a hinderance to effectiveness of the plan.

    OG explanation says: The plan would increase the money available specifically for development loans, not existing loans. Where does the question distinguish whether it talks about existing loans or new loans and where does it says that the existing loan are not development loans ?

    The evidence that 'Businesses are suffering because of a lack of money available for development loans' does not help to answer the any of the above question.

    However, I am absolutely fine with the right answer choice and understand that that clearly attacks the line of reasoning on which the argument is based. But have issues understanding D and to understand on what basis it should be removed.
    Don't overthink arguments.
    Learn to recognize the common flaws and assumptions and understand how the GMAT tends to weaken and strengthen each type.

    Premise: The plan will induce individuals to put more money into their retirement accounts, making more funds available for borrowers.
    Conclusion: There will be an increase in the amount of money available for businesses.

    This argument exhibits a shift in scope and in language.
    The premise is about X (borrowers). The conclusion is about Y (businesses).
    The argument assumes that X and Y are connected. But borrowers and businesses are not the same thing.
    The correct answer will break the connection between X and Y. It will show that the money available for borrowers will not necessarily be available for businesses.

    Answer choice A does just what we need:
    If the money put into retirement accounts leads to a corresponding increase in borrowing by consumers, then the money in the retirement accounts will not be available for businesses.

    The correct answer is A.

    Answer choice D is outside the scope and does not weaken the conclusion.
    The conclusion is not about whether any particular business will be able to qualify for a loan.
    The conclusion is only about whether there will be money available for businesses to borrow.
    Not quite the same thing. Even if some businesses don't qualify, the money would still be available for businesses that do.
    Thus, the conclusion would remain valid.

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    GMATMadeEasy Legendary Member Default Avatar
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    Post Mon Apr 25, 2011 2:47 pm
    @Mitch:
    Quote:
    The conclusion is not about whether any particular business will be able to qualify for a loan.
    The conclusion is only about whether there will be money available for businesses to borrow.
    Not quite the same thing.
    Thanks a lot for pitching in. I re-read the question and realized in question stem , the scope is limited to available of money for loan. Trying to make CR a pleasure and my strong point but need to get it integrated a bit more to avoid such errors as overlooking a few things.

    Part of question stem: The effectiveness of the government's plan is to increase the amount of money available for development loans for businesses

    Conclusion is the KING, and GMAT takers are simple creatures who have to abide by KING'S laws Smile

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