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Bank depositors in the United States are all financially

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

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New post 19 Dec 2016, 17:02
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Question Stats:

65% (01:25) correct 35% (01:39) wrong based on 372 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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New post 20 Dec 2016, 12:19
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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New post 22 Dec 2016, 09:38
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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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New post Updated on: 11 Jun 2017, 05:08
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, 02:16.
Last edited by broall on 11 Jun 2017, 05:08, edited 1 time in total.
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Re: Bank depositors in the United States are all financially [#permalink]

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New post 15 May 2017, 09:11
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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New post 21 Dec 2017, 04:51
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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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Re: Bank depositors in the United States are all financially   [#permalink] 21 Dec 2017, 04:51
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