Business are suffering because of a lack of money available for develo

Dear GMATGuruNY VeritasKarishma DmitryFarber AjiteshArun,

Why is choice D. wrong?

According to choice D., those businesses that are SUFFERING will not get loans.
Regardless of the savings, loans will not go to those businesses in need.

Dear VeritasKarishma GMATNinja GMATGuruNY IanStewart VeritasPrepBrian MartyTargetTestPrep AjiteshArun AtlanticGMAT,

I have some question on choice A. on the bold portion below.
(A) When levels of personal retirement savings increase, consumer borrowing always increases correspondingly.

According to choice A., I interpret as follows

In the past before the tax incentive:
1. Personal retirement savings = $1,000
2. Development loans = $500
3. Consumer borrowings = $500

Then choice A. says after the tax incentive, consumer borrowing increases correspondingly
So after tax incentive:
1. Personal retirement savings = $2,000
2. Development loans = $1,000
3. Consumer borrowings = $1,000

I interpret that "increases correspondingly" means increases with the SAME PROPORTION. If before the incentive, consumer borrowings account for 50% of personal retirement savings, then after the incentive the proportion would be the same. It is the actual amount of consumer borrowings that increases (e.g. from $500 to $1,000 in my above example). But then the actual amount of development loans increases as well

What does "correspondingly" actually mean then?

(A) When levels of personal retirement savings increase, consumer borrowing always increases correspondingly.

GMATNinja AndrewN BrentGMATPrepNow


Just a doubt came on this question:



Even if consumer borrowing always increases , it should not matter on personal retirement savings.
Some amount is deducted every month from our salaries as retirement fund, but even that amount is increased , we can not withdraw that money unless we retire or declare retirement and plan not work on salary basis .

So A seems irrelevant with this information.

Please suggest.

Hi avigutman - what are your thoughts on this variation of option C ?

[Option C (variant)] Even with tax incentives, some MOST people will choose not to increase their levels of retirement savings.

I dont think this (option C variant) is a weak-ener as well.

Because, lets say "Most" is a high as 95 %.

The argument is asking if the plan WORKS for the remaining 5 % specifically. Given we DONT know from C if the plan DOES or DOES NOT work for the 5 % specifically, we cant say if option C variant is weakener or not

Thoughts ?

The government wants to increase the amount of money available for development loans for businesses. How does the government plan to do that?

• The government plans to modify the income-tax structure.
• The modifications are supposed to induce individual taxpayers to put a larger portion of their incomes into retirement savings accounts.
• As more money is deposited into retirement savings accounts, more money becomes available to borrowers.

The government hopes that increasing the money available to borrowers will increase the amount of money available for development loans for business, but is that necessarily the case? We need to select the answer choice that raises the most serious doubt regarding the effectiveness of the government's plan.


The government wants to modify the income-tax structure to make people put more of their income into retirement savings accounts. This should increase the amount of money available to borrowers. But will that money go to development loans for business? What if that money goes to other kinds of loans?

Choice (A) tells us that consumer borrowing WILL increase if personal retirement savings increases. So more money will become available for borrowing, but consumers will borrow some or all of that money. That leaves less (if any) money for development loans. It's possible that some of that money will be used for development loans and that the government's plan will still succeed, but choice (A) raises a serious doubt. Hang on to this one.


Choice (B) tells us that the government will suffer a net loss in revenue as a result of this plan. But we are not trying to determine how the plan will impact the government's revenue. We are simply trying to determine whether the plan will succeed in increasing the amount of money available for development loans for businesses. Choice (B) is irrelevant and can be eliminated.


It's okay if SOME people chose not to increase their levels of retirement savings. As long as some people DO increase their levels of retirement savings, the government's plan could still work. In other words, we don't need ALL people to increase their savings, only some. Choice (C) does not raise serious doubt and can be eliminated.


This is obviously a problem for those businesses whose prospective earnings are insufficient to meet their loan repayment schedules. But we are not concerned with that situation. We simply want to know whether the modifications to the income-tax structure will increase the amount of money available for development loans for business. As long as the amount available for such loans increases, the government's plan will be a success, regardless of whether some businesses can't access that money because they've had problems paying off their loans. Eliminate (D).


A possible misunderstanding of choice (E) is to conclude that taxpayers will get the same tax savings regardless of how much they deposit in retirement savings accounts. That might give people less incentive to increase their retirement savings (i.e. "Why should I put more into my retirement savings if it won't increase by tax savings?") and thus jeopardize the government's plan.

But this is not what choice (E) says. Rather, it says that taxpayers will, regardless of their incomes, get "the same tax savings for a given increase in their retirement savings." In other words, if two taxpayers have different incomes but make identical increases in their retirement savings, then both would get the same tax savings. Thus, choice (E) does not affect the government's plan to induce individual taxpayers to put a larger portion of their incomes into retirement savings accounts. Eliminate (E).

Choice (A) is the best answer.

GMATNinja

I crossed off A because I thought "businesses" were within the scope of "consumer". After all, we can call a business a consumer of the loan right?

The government wants to increase the amount of money available for development loans for businesses. How does the government plan to do that?

• The government plans to modify the income-tax structure.
• The modifications are supposed to induce individual taxpayers to put a larger portion of their incomes into retirement savings accounts.
• As more money is deposited into retirement savings accounts, more money becomes available to borrowers.

The government hopes that increasing the money available to borrowers will increase the amount of money available for development loans for business, but is that necessarily the case? We need to select the answer choice that raises the most serious doubt regarding the effectiveness of the government's plan.


The government wants to modify the income-tax structure to make people put more of their income into retirement savings accounts. This should increase the amount of money available to borrowers. But will that money go to development loans for business? What if that money goes to other kinds of loans?

Choice (A) tells us that consumer borrowing WILL increase if personal retirement savings increases. So more money will become available for borrowing, but consumers will borrow some or all of that money. That leaves less (if any) money for development loans. It's possible that some of that money will be used for development loans and that the government's plan will still succeed, but choice (A) raises a serious doubt. Hang on to this one.


Choice (B) tells us that the government will suffer a net loss in revenue as a result of this plan. But we are not trying to determine how the plan will impact the government's revenue. We are simply trying to determine whether the plan will succeed in increasing the amount of money available for development loans for businesses. Choice (B) is irrelevant and can be eliminated.


It's okay if SOME people chose not to increase their levels of retirement savings. As long as some people DO increase their levels of retirement savings, the government's plan could still work. In other words, we don't need ALL people to increase their savings, only some. Choice (C) does not raise serious doubt and can be eliminated.


This is obviously a problem for those businesses whose prospective earnings are insufficient to meet their loan repayment schedules. But we are not concerned with that situation. We simply want to know whether the modifications to the income-tax structure will increase the amount of money available for development loans for business. As long as the amount available for such loans increases, the government's plan will be a success, regardless of whether some businesses can't access that money because they've had problems paying off their loans. Eliminate (D).


A possible misunderstanding of choice (E) is to conclude that taxpayers will get the same tax savings regardless of how much they deposit in retirement savings accounts. That might give people less incentive to increase their retirement savings (i.e. "Why should I put more into my retirement savings if it won't increase by tax savings?") and thus jeopardize the government's plan.

But this is not what choice (E) says. Rather, it says that taxpayers will, regardless of their incomes, get "the same tax savings for a given increase in their retirement savings." In other words, if two taxpayers have different incomes but make identical increases in their retirement savings, then both would get the same tax savings. Thus, choice (E) does not affect the government's plan to induce individual taxpayers to put a larger portion of their incomes into retirement savings accounts. Eliminate (E).

Choice (A) is the best answer.

Why is E a poor choice? It also thwarts the incentive to individual taxpayers to put a larger portion of their incomes into retirement savings accounts.

The modified tax structure would give all taxpayers, regardless of their incomes, the same tax savings for a given increase in their retirement savings.

Here's (E) again:

All (E) tells us is that the rate of tax savings is the same for rich people and for poor people who put money into their retirement accounts. So, two different people who put the same amount (let's say $1000) into their retirement accounts will receive the same tax savings, even if one of those people makes more money than the other.

That's totally different than saying that one person would get the same amount of tax savings if he/she put two different amounts (say $1000 vs. $5000) into his/her account. (E) just doesn't support this -- we have no idea what the actual tax savings structure looks like. We just know that it's the same for everyone. So it could be equally great for rich and poor people to put the extra $4000 into their retirement accounts.

Overall, (E) doesn't give us a reason to assume that people won't put a large portion of their income into retirement accounts. It could be that the tax savings structure highly incentivizes people -- whether they are high or low income -- to put ton of money into their retirement accounts.

Eliminate (E).

I hope that helps!

Where in E does it it say the “rate” of tax savings?

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