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CR - Difficult - 700 -800. Dind't understand the explanation

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CR - Difficult - 700 -800. Dind't understand the explanation

by svd.kumar » Thu Aug 02, 2012 8:25 pm
q) In the country of Veltria, the past two years' broad economic recession has included a business downturn in the clothing trade, where sales are down by about 7 percent as compared to two years ago. Clothing wholesalers have found, however, that the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its pre recession level in the second year. Which of the following, if true, most helps to explain the change between the first and the second year of the recession in the proportion of credit not paid off on time?

(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.
(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase.
(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.
(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.
(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession.

OA is C but IMO E, Please kindly explain
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by vk_vinayak » Thu Aug 02, 2012 9:19 pm
svd.kumar wrote:q) In the country of Veltria, the past two years' broad economic recession has included a business downturn in the clothing trade, where sales are down by about 7 percent as compared to two years ago. Clothing wholesalers have found, however, that the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its pre recession level in the second year. Which of the following, if true, most helps to explain the change between the first and the second year of the recession in the proportion of credit not paid off on time?

(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.
(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase.
(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.
(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.
(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession.

OA is C but IMO E, Please kindly explain
Credit paid back fell in first year and in the second year it came back to normal level. Even though recession affected two years, how did it happen? We need explain this situation:

E Says that some clothing segments were doing well in the first year. It doesn't tell anything about the second year. We need an explanation that answers why the credit paying was back to normal in the second year, after having fallen in the first. C answers that question successfully.

C says that those (retailers having financial difficulties) who couldn't payback in the first year, all went out of business. So, by the second year only those who didn't have financial difficulties (successful) remained in the market. So, if only successful retailers remained in the market by second year, they all paid the credit back, restoring it to the normal level.

Hope it helps.
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by alex.gellatly » Thu Aug 02, 2012 10:34 pm
svd.kumar wrote:q) In the country of Veltria, the past two years' broad economic recession has included a business downturn in the clothing trade, where sales are down by about 7 percent as compared to two years ago. Clothing wholesalers have found, however, that the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its pre recession level in the second year. Which of the following, if true, most helps to explain the change between the first and the second year of the recession in the proportion of credit not paid off on time?
Our job is to explain why, in the first year many retailers in the first year DID NOT pay off their credit, but then in the second year the rate returned to normal (that is, most retailers paying off their debt). We must explain this.

(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year. This does not help us explain why. Irrelevant
(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase. This does not help us explain why. Irrelevant
(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year. This directly answers our question. If in the first year many retailers couldn't pay off their debt went out of business by the second year then, in the first year we would see many outstanding credit, but by the second year it would return to normal. This is the correct answer.
(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise. This does not help us explain why. Irrelevant
(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession. This does not help us explain why. Irrelevant
You asked why is E incorrect. E is incorrect because it does not explain why more retailers couldn't pay off their debt in the first year, but then could in the second year.
A useful website I found that has every quant OG video explanation:

https://www.beatthegmat.com/useful-websi ... tml#475231
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by Ludacrispat26 » Fri Aug 03, 2012 11:38 am
E tells us nothing about why credit was extended after the first year; all it tells us is that not 100% of the clothing trade was affected by the recession (i.e. there are sub-segments of the trade which did fine despite the economic downturn). Howevre, that fact doesn't give an explanation for why credit was extended after the initial drop of the first year.

C does explain that because credit extensions are determined by credit scores/worthiness of those receiving the credit. If the average credit score of a clothing trade company in year 1 was ~600, that number most likely increased after the worst offenders left the market after year 1, which means year 2's average was something like ~700, which helps explain why there was the change after year one.
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by vinodsundaram » Mon Aug 20, 2012 12:00 am
definitely a tough question. It took more than 2 mins to solve. Understanding the arg was difficult.
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by hjafferi » Thu Aug 23, 2012 12:16 pm
IMO C

Only options that justify plains the change....
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