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Bunuel
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I believe the answer should be E. The question doesn't suggest that a and b equal 0. Remember that in data sufficiency we shouldn't assume anything that is not told. For instance, a could be slightly less than 3, making b more than 0


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I reckon it should be E as said the data above didn't mention that (a,b) is (3,0), just mentioned saying that it lies on the circle.
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Bunuel

A circle with center (1, 0) and radius 2 lies in the coordinate plane shown above. If points (a, b) and (x, y) lie on the circle does b = y?

(1) x = –1
(2) y = 0


Attachment:
image018.jpg


The diagram shows that (a, b) is the bit dot on the circle. It lies on the x axis so it must be (3, 0).
Hence answer will be (D).

An actual GMAT question might make it even clearer by mentioning that the point is as shown in the figure, but even without it, there is no doubt.
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I think the question should clearly state that (a,b) is on the X axis.
Because we are usually told that we cannot make assumption based on figure only.
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