Critical Reasoning

Economist: Some policymakers believe that our country's continued economic growth requires a higher level of personal savings than we currently have. A recent legislative proposal would allow individuals to set up savings accounts in which interest earned would be exempt from taxes until money is withdrawn from the account. Backers of this proposal claim that its implementation would increase the amount of money available for banks to loan at a relatively small cost to the government in lost tax revenues. Yet, when similar tax-incentive programs were tried in the past, virtually all of the money invested through them was diverted from other personal savings, and the overall level of personal savings was unchanged.

The passage as a whole provides the most support for which one of the following conclusions?

(A) Backers of the tax-incentive proposal undoubtedly have some motive other than their expressed aim of increasing the amount of money available for banks to loan.

(B) The proposed tax incentive is unlikely to attract enough additional money into personal savings accounts to make up for the attendant loss in tax revenues.

(C) A tax-incentive program that resulted in substantial loss of tax revenues would be likely to generate a large increase in personal savings.

(D) The economy will be in danger unless some alternative to increased personal savings can
be found to stimulate growth.

(E) The government has no effective means of influencing the amount of money that people
are willing to put into savings accounts.

Could anyone please explain how to solve this question. OA: B

Choice {B} Means that the government's plan to make money without small loss is not possible as when the plan was executed people simply moved their money to Tax free account.Thus saving all the tax which they would have paid in the other personal bank deposits, resulting in loss to government scheme.

batwaraanirudh wrote:Economist: Some policymakers believe that our country's continued economic growth requires a higher level of personal savings than we currently have. A recent legislative proposal would allow individuals to set up savings accounts in which interest earned would be exempt from taxes until money is withdrawn from the account. Backers of this proposal claim that its implementation would increase the amount of money available for banks to loan at a relatively small cost to the government in lost tax revenues. Yet, when similar tax-incentive programs were tried in the past, virtually all of the money invested through them was diverted from other personal savings, and the overall level of personal savings was unchanged.

The passage as a whole provides the most support for which one of the following conclusions?

(A) Backers of the tax-incentive proposal undoubtedly have some motive other than their expressed aim of increasing the amount of money available for banks to loan.

(B) The proposed tax incentive is unlikely to attract enough additional money into personal savings accounts to make up for the attendant loss in tax revenues.

(C) A tax-incentive program that resulted in substantial loss of tax revenues would be likely to generate a large increase in personal savings.

(D) The economy will be in danger unless some alternative to increased personal savings can
be found to stimulate growth.

(E) The government has no effective means of influencing the amount of money that people
are willing to put into savings accounts.

Could anyone please explain how to solve this question. OA: B

What is the source?Seems a good question though, with intricate meaning.

So what does the economist say?

To continue same trend of economic growth===savings have to be increased
Recent legislation would aid in this
This would augment money available with banks so as to make them lend more
But past similar legislation did not help, since people only transferred funds from one bag to
another


So takeaways

Similar legislation did not work, since people just transferred funds from one bag to another, without actually contributing extra monies to the "taxless bag"

A===Too bold to be true

B==Similar to our takeaway

C==Murky

D=="Danger", passage says to continue the development

E==False since people did invest in the previously introduced scheme irrelevant of the source.

So B can be good choice.