Business 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 taxpapyers 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 increase correspondingly
B. The increased tax revenue the government would receive as a result of business expansino 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.
Businesses can't borrow because no money available.
Policy to encourage savings
Businesses will have more money available to borrow.
B - This could be true, but this has no bearing on the conclusion of this argument.
C- This can be an answer. But, the question explicitly states that people will save more because of the govt policy. No need to assume otherwise.
D-Bankers will not lend money. This again is very attractive to be an answer. The only reason, I would discard this because it talks about a specific subset of businesses that need to borrow money. The argument talks about businesses in general.
E-This clearly is not the answer as it would help the govt policy rather than hurting it.
A - The conclusion is based upon availability of funds with banks that businesses can borrow. In this case, people saving more will borrow more, leaving the net close to where it was before the implementation of the govt policy. This is the best answer in my opinion.