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Challenging CR -1

Expert replies
by umeshpatil » Sun May 27, 2012 7:53 pm
Hello GMAT crackers,

Critical reasoning questions can be easily solved when we understand, why four options are wrong than one option is correct. This is because; all options create illusion of being correct.

So, your answer should include why four options are wrong rather than just answering the Question option.



1. 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 increases 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.
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Source: — Critical Reasoning |

by eagleeye » Sun May 27, 2012 8:16 pm
Hi umeshpatil:
The correct answer should be A. Let me explain:

We are given:
1. Premise: Businesses are suffering due to lack of money for development loans.
2. Conclusion: Govt wants to change the income tax structure so that there is more money in retirement accounts.
3. Premise: If there is more money in retirement accounts, more money becomes available to borrowers.


a) When levels of personal retirement savings increase, consumer borrowing always increases correspondingly.
If consumer borrowing increases also, the increased money might be used for consumer loans leaving no more money than before for business loans. Hence this option puts a dent in Govt.'s policy. YES.

b) The increases 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.
This is outside the scope. The government in this case cares about business expansion and not its own income tax revenues. NO.

c) Even with tax incentives, some people will choose not to increase their levels of retirement savings.
Even if some people choose to not increase, some others may increase, leading to more money for borrowers. NO.

d) Bankers generally will not continue to lend money to businesses whose prospective earnings are insufficient to meet their loan repayment schedules.
First, bankers may do whatever they want to. Maybe the government gives direct loans.
Secondly, this may or may not affect the overall business expansion for all businesses that receive the loans. NO.

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.
Outside the scope. There is no mention of same tax savings. It also doesn't affect the government's decision to make the policy change. NO.

Let me know what the OA is and if this helps :)
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by umeshpatil » Mon May 28, 2012 7:44 pm
Hi Eagleeye,

Your Answer is absolutely correct. And also it is well justified. The major hurdle in the question is consumer borrowing confuses with business borrowing and take us away from actual answer.
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