In the country of Veltria, the past two years' broad : GMAT Critical Reasoning (CR)
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# In the country of Veltria, the past two years' broad

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02 Dec 2009, 11:03
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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 prerecession 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.
[Reveal] Spoiler: OA

Last edited by Zarrolou on 04 Aug 2013, 22:05, edited 1 time in total.
Edited the question.
If you have any questions
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06 Dec 2009, 09:02
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ok,i must admit one thing, i have arrived at C purely on the basis of aggressive elimination strategy . so i am not really sure.

nevertheless i will try to explain my reasoning.

the premise is that there was a recession that affected sales. given timeline is 2 years. now there seems to be an ongoing tradition of credit between the wholesalers and retailers. this relationship suffered a bit in the first year but it was back on track in the second.
so on to the choices:

A: more credit extended between years 1 and 2 is irrelevant to the repayment. so OUT.
B:If costs for retailers increased during year 2, then how can they repay more? so OUT.
D: the retailers ATTEMPTED to increase sales by discounting. but were they any good at raising money to repay loans? not very clear ... so OUT.
E: if recession did not affect some divisions... er... so what? can't find any connection.. so out

last option: C..... bankruptcy for competitiors meant less competition. so the survivors found more customers who bought their stuff. hence they raised money and repaid in the 2nd year.

what is the OA?
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06 Dec 2009, 09:22
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nitronori41 wrote:
ok,i must admit one thing, i have arrived at C purely on the basis of aggressive elimination strategy . so i am not really sure.

nevertheless i will try to explain my reasoning.

the premise is that there was a recession that affected sales. given timeline is 2 years. now there seems to be an ongoing tradition of credit between the wholesalers and retailers. this relationship suffered a bit in the first year but it was back on track in the second.
so on to the choices:

A: more credit extended between years 1 and 2 is irrelevant to the repayment. so OUT.
B:If costs for retailers increased during year 2, then how can they repay more? so OUT.
D: the retailers ATTEMPTED to increase sales by discounting. but were they any good at raising money to repay loans? not very clear ... so OUT.
E: if recession did not affect some divisions... er... so what? can't find any connection.. so out

last option: C..... bankruptcy for competitiors meant less competition. so the survivors found more customers who bought their stuff. hence they raised money and repaid in the 2nd year.

what is the OA?

nice explanation yes the OA is C
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Re: In the country of Veltria, the past two years' broad [#permalink]

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14 Aug 2013, 07:37
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I would confess this question stumped me initially but it's a sheer beauty how the question is crafted with creating substantial confusion (to process in less than 2 mins ). Explanation-

1st year of recession
100 units of credit was offered similar to 10 retailers (10 units each)
5 poor performers were able to pay back 5 unit each and
5 good performers returned 8 units each (its recession after all )
total credit recovered = 5 x 5 + 5 x 8 = 65
proportion = (total credit recovered) / (total credit given) = 65 / 100 = 0.65

2nd year of recession
Since only 5 players remain, credit extended this year itself will reduce (10 units each) = 50 units
5 good performers returned 7 units each (again considering scenario that even good performers had bad time)
total credit recovered = 5 x 7 = 35
proportion = (total credit recovered) / (total credit given) = 35 / 50 = 0.70

The point to be noted here is that choice C does the trick of reducing the denominator considerably (people are out of business) by stating the basis to be "proportion" instead of actual amount. So, even though the actual amount recovered 2nd year is far less due to recession (35 against 65) than the 1st year, the proportion recovered increases.

I hope this adds some value.

Thanks!
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Re: In the country of Veltria [#permalink]

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27 Apr 2011, 06:02
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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.

these retailers who were having financial difficulties were more likely to default on credit. so they defaulted in first year of recession and went out of business. which also means credit in the second year was extended to only those remaining in business.
the remaining were not having financial difficulties so they stayed in business and managed to pay credit by the end of second year.
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Re: In the country of Veltria [#permalink]

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15 Oct 2011, 18:59
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gmat1112 wrote:
Can someone please explain why C is better than D?

C assumes that retailers will gain if competitors go out of business. Is this a valid assumption given the broad economic recession?

I don't see the above assumption in C. All C tries to say is that a large proportion of retailers were having financial difficulties before the start of recession; these retailers went out of business in the first year. Now, the assumption that I do see is, these people who had financial difficulties before the start of recession are likely to have missed their dues to the creditors during the first year. Thus, those who had financial difficulties ( further burdened by the recession ) during the first year could have been the reason for the unusual percentage of credit defaults. Once they were out of business, the proportion of debts that were payed off returned to prerecession levels.

gmat1112 wrote:
Also, C does not indicate the percentage of businessmen who had financial difficulties.

C does indicate the percentage of businessmen who had financial difficulties before recession. The lines "Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced" indicate a relatively large proportion.

gmat1112 wrote:
I am leaning more towards D, although it is not clear if the attempt made by retailers was fruitful.

Even if the retailer's efforts as described by D were to be successful, considering the recession, there is no reason to think that their profit margins will be enough to payback the creditors. This further weakens D.
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Re: In the country of Veltria [#permalink]

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04 Aug 2013, 21:57
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Clothing wholesalers have found, however, that the proportion of credit extended to retailers that was paid off on timefell sharply in the first year of the recession but returned to its prerecession level in the second year.

let say there were 4 retailers
total revenue from all 4 let say = 100 (assume 25 from each)
now recession came now revenue dropped to 50 in first year ( assume 12.5 from each)===>so this is the proportion of credit which dropped from 25 to 12.5
now it says in second year proportion came back to normal i.e =25
now how is that possible.
let say 2 retailers close their shop so we have 2 retailer left and demand in recession is of 50 which can be equally divided between 2 i,e it will come to normal of 50...==>now this is what correct option (C) says.

(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.

hope this helps
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Re: In the country of Veltria, the past two years' broad [#permalink]

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19 Jul 2012, 15:29
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betterscore wrote:
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 prerecession 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.

Pls check the detail discussion in below link -
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19 Feb 2015, 03:55
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(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year --> The amount of extended credit is errelevant, as the argument says the proportion Payment/Credit, the amount can change but the proportion can stay the same. (paid 100 / credit 1000 = 10%; paid 200 / credit 2000 = 10 %)
(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 --> when the costs went up between 1 and 2nd years, companies can not have more money to pay for the credit - reverse: they have less money.
(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 --> CORRECT. Just eliminated the wrong answer choices to derive to ....(C). Update for (C). I have other opinion regarding WHY C is the right answer, many have stated here, ok, companies were kicked out , so that's why other companies have a better life now and can pay back the loan, because of the decreased competition --> In my opinion, if those companies were eliminated, it means that only healthy companies left there, wich can pay the credit back.
(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise --> OK, attempted, and what was the result of it ? Had the succeeded or not...?
(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 --> a) We need some information that 1st year had worse ecomic situation than 2nd --> this answer choice illustrates the reverse one. B) We don't know the share of work clothes in the whole clothes market...
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Last edited by BrainLab on 19 Feb 2015, 05:38, edited 1 time in total.
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Re: In the country of Veltria [#permalink]

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02 Dec 2009, 11:33
The stimulus is a bit confusing but I think they're saying that people paid less debt in Year 1 than in Year 2. So the answer should be something about Year 2 being better economically than Year 1.

I don't see how extending more credit in Year 2 (A) would make retailers pay back more debt.

(B) means more expenses for retailers in Year 2, so this can't be right.

If they went bankrupt, why would they pay more debt back (C)?

(E) makes Year 1 seem better but less people paid debt then...

I'm going with (D) - they paid off debt in Year 2 by selling merchandise at a discount (dumping inventory).

Whatya all think?
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Re: In the country of Veltria [#permalink]

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02 Dec 2009, 11:54
johnnymac wrote:
The stimulus is a bit confusing but I think they're saying that people paid less debt in Year 1 than in Year 2. So the answer should be something about Year 2 being better economically than Year 1.

I don't see how extending more credit in Year 2 (A) would make retailers pay back more debt.

(B) means more expenses for retailers in Year 2, so this can't be right.

If they went bankrupt, why would they pay more debt back (C)?

(E) makes Year 1 seem better but less people paid debt then...

I'm going with (D) - they paid off debt in Year 2 by selling merchandise at a discount (dumping inventory).

Whatya all think?

I marked E... but its not the correct ans.. , even D is not the correct one
I am just waiting for some more responses and then will reveal the OA
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Re: In the country of Veltria [#permalink]

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06 Dec 2009, 09:25

The only option that can solve the discrepancy of retailers were able to pay off the credit to the wholesalers.
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Re: In the country of Veltria [#permalink]

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06 Dec 2009, 10:25
Looking at it now, C makes sense.

I guess I was overthinking and considering whether bankrupt companies would be considered defaulting on their debts. I understand your logi c to be: if a bunch of the companies don't exist anymore, the leftover companies are more likely to pay the money back - and that make sense.
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Re: In the country of Veltria [#permalink]

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15 May 2010, 00:48
I usually come up with 1-2 reasons to support my answer but for this question, I was really stumped. But, yes I was hovering over less available profits/finanaces for these defaulters.

As I am managing my retail business, thie helped me to reach C by PoE

I hope GMAT would be nice to me on D-day.
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Re: In the country of Veltria [#permalink]

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19 May 2010, 00:49
IMO C.

A) Credit extended to retailers increased. it doesn't say anything about how much the retailers returned.

B)if the prices increased, the retailers should have had difficulty returning the credit.

C)Correct. Since the retailers with financial difficulties are out of business, the remaining ones could easily pay off their debt. This explains why credit extended to retailers that was paid off on time fell in the first year of the recession but returned to its prerecession level in the second year.

D)Attempted: not sure if they could really do it.

E) out of scope.
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Re: In the country of Veltria [#permalink]

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12 Apr 2011, 06:57
I think the explanation give for answer choice C is far fetched. It says considerable number for vendor ran out of business. But that dose not give us the liberty to presume that remain did good business.
While choice D leaves no room for assumptions. Explains both part year one and year two
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30 Jul 2011, 20:19
Stumped initially but somehow managed to select C.
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Re: In the country of Veltria [#permalink]

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15 Oct 2011, 09:26
Can someone please explain why C is better than D?

C assumes that retailers will gain if competitors go out of business. Is this a valid assumption given the broad economic recession?

Also, C does not indicate the percentage of businessmen who had financial difficulties.

I am leaning more towards D, although it is not clear if the attempt made by retailers was fruitful.

Thanks!
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Re: In the country of Veltria [#permalink]

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15 Oct 2011, 23:39
+1 for C.

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Re: In the country of Veltria [#permalink]

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16 Oct 2011, 12:28
Great explanation, DexDee. Thank you.
Re: In the country of Veltria   [#permalink] 16 Oct 2011, 12:28

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