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CR - complete the passage

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by yoavyes » Sat Nov 18, 2017 3:09 am
16. Which of the following best completes the passage below?
As long as savings deposits are insured by the government, depositors will have no incentive to evaluate the financial strength of a savings bank. Yield alone will influence their choice of bank. To attract deposits, banks will be forced to offer the highest possible interest rates. And since paying higher rates inevitably strains the financial strength of a bank, ______
(A) the government will be forced to impose limitations on interest rates
(B) deposit insurance will ultimately lead to the financial weakening of many banks
(C) savers will be forced to choose between deposit insurance and higher interest rates
(D) deposits will tend to go to the banks with the greatest financial strength
(E) bank profits will tend to rise to ever-higher levels

Source: 1000 series
OA: B

I'm trying to understand why B is the right answer.
I Understand that the right answer is probably a conclusion but I can not find the reason why B is the conclusion (especially how it connect to the other premises - experts - please help :)
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Source: — Critical Reasoning |

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by ErikaPrepScholar » Mon Nov 20, 2017 10:42 am
We can outline the passage like this:

Deposit insurance by govt
LEADS TO
depositors don't care about financial strength of bank; they only care about yield
LEADS TO
banks offer highest possible interest rates
LEADS TO
financial weakening of banks

Since all of these steps lead to each other, we can say that the first step leads to the last step: in other words,

deposit insurance by govt
LEADS TO
financial weakening of banks

This is exactly what answer choice B says. So we didn't actually need to extrapolate out from the passage at all - we simply needed to restate what we'd already been given in the passage.
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by Krabhay » Tue Dec 18, 2018 9:49 pm
Premise: Government insurance protects bank customers from banks' financial weakness, allowing customers to choose banks only based on interest rate.
Premise/Conclusion: Banks compete solely for customers based on interest rate, so banks are forced to raise interest rates.
Premise: As interest rates rise, the financial soundness of a bank falls.

Conclusion: (B) Deposit insurance will ultimately lead to the financial weakening of many banks

A: Stimulus doesn't mention any limitations on the governments' part or any desire to insure that banks are financially strong
C: Stimulus doesn't mention anything about deposit insurance for bank customers being available
D: Stimulus says the opposite -- that financial strength is not a criterion for customers choosing a savings bank
E: Stimulus says rising interest rates will weaken the financial stability of banks, not strengthen.
Hence, b is the answer.
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