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by fiza gupta » Mon Sep 19, 2016 6:04 am

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Business are suffering because of a lack of money available for development loans. To help business, the government plans to modify the income-tax structure in order to induce individual tax payers 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 business?

(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 business 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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by richachampion » Mon Sep 19, 2016 7:15 am

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fiza gupta wrote:Business are suffering because of a lack of money available for development loans. To help business, the government plans to modify the income-tax structure in order to induce individual tax payers 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 business?

(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 business 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.

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.

This option could be alluring to many students. But beaware that we are not allowed to make any unwarranted and unstated assumption for the ANSWER CHOICES. The governement loss is not at all a concern. The only concern is that there should be more funds available, in total to the previous amount, to governemnet for giving loans and this can be expressed mathematically as 👉
NEW TAX REVENUE + ADDITIONAL MONEY AVAILABLE IN RETIREMENT PLANS > OLD TAX REVENUE

You was trying to study the ration or relationship between NEW TAX REVENUE & OLD TAX REVENUE
→ Your study or understadning is flawed.

(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.

This is a neutral statement and COMPLETELY OUT OF SCOPE → This statement was even true when there was no "more money becomes available to borrowers" This option has no bearing on the conclusion or any unstated assumption.

(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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by MBA Challengers » Sun Oct 02, 2016 4:47 am

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fiza gupta wrote:Business are suffering because of a lack of money available for development loans. To help business, the government plans to modify the income-tax structure in order to induce individual tax payers 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 business?

(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 business 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.
Hi Fiza,

Start with breaking up the question stem into premises and conclusion to understand it better:

Premise 1: Businesses are suffering for a lack of money available as development loan
Premise 2: Government plans to modify Income-tax structure to induce individuals to put larger portion of income into retirement savings
Conclusion: More money in such retirement accounts = more money available to borrowers (here, the governments' intent is that more money available to be borrowed as development loans for business)

Now, move on to the options:

Option A: Think about it: if the government puts the scheme into action, personal retirement savings increase and this leads to an increase in the consumer borrowing also. So, the money that was supposed to be available for business development loans will be dipped into for consumer borrowing as well, defeating the purpose. CORRECT.
Option B: There is no mention of any concern or in fact any loss of personal tax from the change in Income-tax structure. INCORRECT.
Option C: Here, the keyword is some. However, if most people do end up increasing retirement savings, the purpose will be met. INCORRECT.
Option D: This has nothing to do with the question stem as the stem talks about overall money being less available for development loans for businesses. INCORRECT.
Option E: The increase in retirement savings one way or the other is not an area of concern. INCORRECT.

So, the correct answer is A.
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