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# Bank depositors in the United States are all financially

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Manager
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Bank depositors in the United States are all financially  [#permalink]

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19 Dec 2016, 16:02
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45% (medium)

Question Stats:

68% (02:06) correct 32% (02:15) wrong based on 537 sessions

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Bank depositors in the United States are all financially protected against bank failure because the government insures all individuals' bank deposits. An economist argues that this insurance is partly responsible for the high rate of bank failures, since it removes from depositors any financial incentive to find out whether the bank that holds their money is secure against failure. If depositors were more selective, then banks would need to be secure in order to compete for depositors' money.

Which of the following, if true, most seriously weakens the economist's argument?

A) Before the government started to insure depositors against bank failure, there was a lower rate of bank failure than there is now.

B) When the government did not insure deposits, frequent bank failures occurred as a result of depositors' fears of losing money in bank failures.

C) Surveys show that a significant proportion of depositors are aware that their deposits are insured by the government.

D) There is an upper limit on the amount of an individual's deposit that the government will insure, but very few individuals' deposits exceed this limit.

E) The security of a bank against failure depends on the percentage of its assets that are loaned out and also on how much risk its loans involve.

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Re: Bank depositors in the United States are all financially  [#permalink]

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20 Dec 2016, 11:19
The assumption version of this question can be found here: bank-depositors-in-the-united-states-are-all-financially-63628.html
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Re: Bank depositors in the United States are all financially  [#permalink]

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22 Dec 2016, 08:38
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Simple weaken question,
A) Before the government started to insure depositors against bank failure, there was a lower rate of bank failure than there is now.--- Information about bank failure at current time point is not available in the argument.. Eliminate.

B) When the government did not insure deposits, frequent bank failures occurred as a result of depositors' fears of losing money in bank failures.---- Correct. Previously, more failure were happened when government not insured the deposits.

C) Surveys show that a significant proportion of depositors are aware that their deposits are insured by the government.--- Not correct.

D) There is an upper limit on the amount of an individual's deposit that the government will insure, but very few individuals' deposits exceed this limit.---- Not make sense.. Does not weaken the argument.

E) The security of a bank against failure depends on the percentage of its assets that are loaned out and also on how much risk its loans involve.---- loan position will not effect much and irrelevant.
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Re: Bank depositors in the United States are all financially  [#permalink]

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Updated on: 11 Jun 2017, 04:08
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Bank depositors in the United States are all financially protected against bank failure because the government insures all individuals’ bank deposits. An economist argues that this insurance is partly responsible for the high rate of bank failures, since it removes from depositors any financial incentive to find out whether the bank that holds their money is secure against failure. If depositors were more selective, then banks would need to be secure in order to compete for depositors' money.

Which of the following, if true, most seriously weakens the economist's argument?
(A) Before the government started to insure depositors against bank failure, there was a lower rate of bank failure than there is now.
(B) When the government did not insure deposits, frequent bank failures occurred as result of depositors' fears of losing money in bank failures.
(C) Surveys show that a significant proportion of depositors are aware that their deposits are insured by the government.
(D) There is an upper limit on the amount of an individual's deposit that the government will insure, but very few individuals' deposits exceed this limit.
(E) The security of a bank against failure depends on the percentage of its assets that are loaned out and also on how much risk its loans involve
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Originally posted by mihir0710 on 15 May 2017, 01:16.
Last edited by broall on 11 Jun 2017, 04:08, edited 1 time in total.
Merged topic. Please search before posting question.
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Re: Bank depositors in the United States are all financially  [#permalink]

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15 May 2017, 08:11
mihir0710 wrote:
Bank depositors in the United States are all financially protected against bank failure because the government insures all individuals’ bank deposits. An economist argues that this insurance is partly responsible for the high rate of bank failures, since it removes from depositors any financial incentive to find out whether the bank that holds their money is secure against failure. If depositors were more selective, then banks would need to be secure in order to compete for depositors' money.

Which of the following, if true, most seriously weakens the economist's argument?
(A) Before the government started to insure depositors against bank failure, there was a lower rate of bank failure than there is now.
(B) When the government did not insure deposits, frequent bank failures occurred as result of depositors' fears of losing money in bank failures.
(C) Surveys show that a significant proportion of depositors are aware that their deposits are insured by the government.
(D) There is an upper limit on the amount of an individual's deposit that the government will insure, but very few individuals' deposits exceed this limit.
(E) The security of a bank against failure depends on the percentage of its assets that are loaned out and also on how much risk its loans involve

Our job is to weaken the economist's argument. His conclusion is: Government insurance is partly responsible for the high rate of bank failures. If this conclusion is true then the addition of government insurance must have caused an increase in bank failures and removing this insurance should result in fewer bank failures.

Answer choice (B) is the best answer. This is the one that suggests that without government insurance, bank failures occurred frequently. It implies that government insurance has reduced the high rate of bank failures.
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Re: Bank depositors in the United States are all financially  [#permalink]

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21 Dec 2017, 03:51
GMATNinja VeritasPrepKarishma

For solution provided by eliaslatour

Quote:
Our job is to weaken the economist's argument. His conclusion is: Government insurance is partly responsible for the high rate of bank failures. If this conclusion is true then the addition of government insurance must have caused an increase in bank failures and removing this insurance should result in fewer bank failures.

If I pay close attention to word partly that means something else is responsible for high rate of bank failures?

Does not (E) fit more correctly?
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Bank depositors in the United States are all financially  [#permalink]

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Updated on: 21 Apr 2018, 23:38
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Conclusion: insurance is 'partly' responsible for the high rate of bank failures.
Evidence for conclusion: depositors are feeling secure from any bank failure. moreover, if depositors were more selective, Competition would have come into picture.

Pre-thinking - As we said in conclusion, insurance is 'partly' responsible for the high rate of bank failures. and we need to weaken it. What if we look for an option that shows that a high rate of bank failures would persist even in the absence of deposit insurance, not partly but 100%. moreover I think partly word is a trap in this question.

Which of the following, if true, most seriously weakens the economist's argument?

A) Before the government started to insure depositors against bank failure, there was a lower rate of bank failure than there is now.--- Classic causality. Ask yourself, Are you 100% sure this is the reason. Can something else be possible ? even partly ?

B) When the government did not insure deposits, frequent bank failures occurred as a result of depositors' fears of losing money in bank failures. --- so prior to insurance banks used to failure. now it is insured and still failing. clearly it is not affecting the factor that is responsible for failure. in other words insurance is not affecting it even partly.

C) Surveys show that a significant proportion of depositors are aware that their deposits are insured by the government. --- So? irrelevant to conclusion.

D) There is an upper limit on the amount of an individual's deposit that the government will insure, but very few individuals' deposits exceed this limit. looks like you are talking about a case. any how its not at all part of solution.

E) The security of a bank against failure depends on the percentage of its assets that are loaned out and also on how much risk its loans involve. --- irrelevant

I think its a good question given that very good traps are used, otherwise a simple one.
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Simple strategy:
“Once you’ve eliminated the impossible, whatever remains, however improbable, must be the truth.”

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Originally posted by aragonn on 21 Apr 2018, 23:33.
Last edited by aragonn on 21 Apr 2018, 23:38, edited 1 time in total.
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Bank depositors in the United States are all financially  [#permalink]

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21 Apr 2018, 23:35

If I pay close attention to word partly that means something else is responsible for high rate of bank failures?

Does not (E) fit more correctly?

the argument is not concerned with things about the banks themselves that make the banks more susceptible to failure; rather, it is concerned with the behavior of the banks' depositors. more like think from your prospective. you are a customer in a bank. Hope you see it though. Ask any specific questions, if needed.
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Thanks!
Do give some kudos.

Simple strategy:
“Once you’ve eliminated the impossible, whatever remains, however improbable, must be the truth.”

GMAT Ninja YouTube! Series 1| GMAT Ninja YouTube! Series 2 | How to Improve GMAT Quant from Q49 to a Perfect Q51

My Notes:
Reading comprehension | Critical Reasoning | Absolute Phrases | Subjunctive Mood

Bank depositors in the United States are all financially &nbs [#permalink] 21 Apr 2018, 23:35
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