Critical Reasoning

Source: OG 12th Ed

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.

What is the problem in B?

OA: A

it will not affect the plan

Hi akhpad,

B is wrong because it is possible that the increased tax revenues might offset the loss after first year..
So you can't tell just on the basis of results in the first year.

C clearly says that some people will NOT choose to increase their levels of retirement savings. This should be the answer.

akhpad wrote:Source: OG 12th Ed

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.

What is the problem in B?

A

Money available for development loans for businesses...

Consumer borrowing increases and less money available for businesses...Thus raises the most serious doubt regarding the effectiveness of the government's plan.

Let me offer another way to look at it as well,

This one is a plan question. You can tell based on the question stem. A plan question might say "plan" as this one does - and if it says "plan" it is a plan!

But a great way to recognize a plan question is that it has a goal mentioned in the question stem - while other questions do not. In this case it says, "the government's plan to increase the amount of money available for development loans for businesses" So it not only says that there is a plan, but it also outlines that the goal is to increase the amount of money available for development loans for businesses."

So, with a plan question, the way to weaken is to use the automatic conclusion - "the plan will not achieve the goal." Then you want to find the plan and the goal. In this case the plan is: "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"

The goal as mentioned in the question stem is to "increase the amount of money available for development loans for businesses."

You want the answer choice that indicates that the plan to modify the income tax structure will not result in more money available for business loans. Answer Choice A does this - if consumer borrowing increases at the same rate as the additional savings then there will be no money left for extra business lending.

It really helps to focus on these two elements -- the plan and the goal. Many people look right past A when they treat these as a regular weaken question. But when you understand that your focus is on the money left for the business development lending then A stands out.

e-GMAT wrote:akhpad: This is a classic Weaken problem. While answering weaken questions, always look for the choice that will weaken the conclusion. The conclusion of the passage is as follows:

As more money goes into retirement savings account, more money is available to businesses to borrow. Hence, the correct choice would be the one that indicates that businesses will not have more money to borrow even when individuals put more money into their retirement savings account.

Choice A, indicates the same as it states that when consumers put more money into retirement savings account they borrow more, potentially competing for the same pool of funds that businesses would compete for, thereby negating the purpose for which consumers were incentivized to put money into retirement savings account. Hence, a choice will be correct that states that money supply to businesses will not increase in spite of government incentives to consumers to increase their savings in retirement savings account.

Note that there could be few other options that will be considered correct. One other version could be:
Legal regulations do not permit banks to loan money from retirement savings account deposits to businesses.

Choice B is outside the scope of passage as it deals with government income which is not a point of discussion in this passage. Note that the passage does not state that there is a requirement to maintain the level or tax revenue for government.

I wish to express my thinking and want experts, members to comment on it.

I hear that there are 2 ways of weakening. type 1, casting doubt on an assumption. Type 2, weakening the conclusion directly.

Most weakening questions in OG books belong to type 1. I do not see type 2. Please, give an exampleof type 2, if type 2 exists.

It is posstible that type 2 is plan question in which we weaken the plan by weakening the plan directly not by casting doubt on an assumption. There is NO ASSUMPTION IN THE PLAN QUESTION.

Is my thinking correct, pls, comment/help

Can someone explain why (C) is wrong?

(C) Even with tax incentives, some people will choose not to increase their levels of retirement savings.

Is it because "some" people is vague and that could mean only a few people don't increase while alot of money from the remaining people, in turn, is put into retirement accounts? If it said "most people" or "everyone" instead of "some people," would that actually make this statement a valid answer (assuming all 4 other choices are wrong)?

Yes, bigge2win (great screen name by the way!)

If choice C said "most people" or "everyone" it would be a much stronger answer. One of the strengths of the correct answer choice (A) is that it says "consumer borrowing ALWAYS increases correspondingly."

So if the others were wrong, as you state in your hypothetical, then C would be the correct answer.

I like the way that you are thinking through the reasoning and the answer choices. It is very important to understand what makes an answer choice right or wrong.

hello, I opened this old thread because I found this Question on OG and I didn't understand the explanation. my first concern is, why does the OG or gmat test makers assume that everyone knows there is a difference between consumers borrowing, and business borrowing. For me they are all borrowers. if someone can explain the difference please do so.
I completely neglected this answer. my second question is: why is C wrong.

Thanks

jiana90 wrote:hello, I opened this old thread because I found this Question on OG and I didn't understand the explanation. my first concern is, why does the OG or gmat test makers assume that everyone knows there is a difference between consumers borrowing, and business borrowing. For me they are all borrowers. if someone can explain the difference please do so.
I completely neglected this answer. my second question is: why is C wrong.

Thanks

A. Come back after probing others
B. Irrelevant.. takes us some place else
C. wants us to generalize,
D. Same issue as C
E. Potential strengther

I will say yes the borrowers are not very clearly classified in the conclusion, but you see in C and D, both these options wants a further assumption about the proportion of "people" and "businesses" respectively.