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Americans who invested in six-month bank certificates of deposit earne

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Joined: 24 Mar 2018
Posts: 8
Location: Canada
Americans who invested in six-month bank certificates of deposit earne [#permalink]

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New post 09 Apr 2018, 06:29
5
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A
B
C
D
E

Difficulty:

  95% (hard)

Question Stats:

46% (02:03) correct 54% (02:04) wrong based on 157 sessions

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Americans who invested in six-month bank certificates of deposit earned 3.2% between 2009 and 2012 before tax, whereas consumer prices rose by 6.6%. The financial-repression levy was therefore 3.2 %. In Britain even savers who put cash in the best tax-free individual savings accounts would have earned a cumulative 11% between 2009 and 2012, during which time consumer prices rose by 13.4%. Outside that tax shelter, middle-class savers who pay a marginal tax rate of 40% would have earned a net return of 6.6%. In real terms, their savings would have declined by 6%.
Which of the following is an assumption on which the argument depends?

A) Savers in America and Britain have seen a hit to their purchasing power in the form of negative real interest rates.
B) Real interest rates can be negative when nominal interest rates are below inflation.
C) Interest rates rise relative to the economic growth of a country.
D) Savings yield real returns only when they enhance the purchasing power of savers’ capital.
E) The purchasing power of deposits is reduced relative to the nominal size of deposits due to financial repression.
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Joined: 16 Mar 2018
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Location: United Kingdom
GMAT 1: 650 Q45 V35
Re: Americans who invested in six-month bank certificates of deposit earne [#permalink]

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New post 09 Apr 2018, 07:01
I will go with Option D
As regarding Americans it exemplifies how despite getting 3.2% of rate on deposits the financial repression levy made their real interest gain to be negative as CPI rose to 6.6%. Similarly for britishers although they received 11% but CPI rose to 13.2% thus reducing the real return on investments.
Hence the argument assumes that Real interest is earned negative because consumer prices have gone up.


Option A : Reads more like a further conclusion to the argument rather than an assumption.

Option B: we don’t know if Inflation rates are same as Consumer price index in the argument.



Option C: Out of scope of argument

Option E : This is a further conclusion that could be made out of argument but not an assumption on which argument depends.


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Re: Americans who invested in six-month bank certificates of deposit earne [#permalink]

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New post 12 Apr 2018, 13:15
Option D, but in my opinion this question requires way too much outside knowledge. I think someone without a financial services background would struggle to comprehend this question based on the information given.
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Re: Americans who invested in six-month bank certificates of deposit earne [#permalink]

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New post 14 Apr 2018, 08:37
I guessed B- given deflation would be out of the picture.

Can I get further clarification on how D is the answer?

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Re: Americans who invested in six-month bank certificates of deposit earne [#permalink]

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New post 15 Apr 2018, 20:38
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Can you please explain this question
Re: Americans who invested in six-month bank certificates of deposit earne   [#permalink] 15 Apr 2018, 20:38
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