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Bank depositors in the United States are all financially

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

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New post 27 Jun 2013, 22:05
@pqhai,

Hi,

why option D is incorrect?
if X->Y, then assumption could be that Y --x-->X(Y will not cause X)
or A->Y(A will cause Y)
In option D, aint we trying to do this --it assumes other cause (interest rate) as the reason of bank failures?

Someone, Please explain
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Re: Bank depositors in the United States are all financially [#permalink]

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New post 28 Jun 2013, 02:30
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Let me try:

Author mentions that "since it removes from depositors any financial incentive" ---> so depositors are not financially concerned because in any case their money is secured.

D restates that depositors are not financially motivated and that the interest rates are not a significant factor for them. Sounds good, and may strengthen the arg little bit but the conclusion is different here.

Conclusion: If depositors were more selective, then banks would need to be secure in order to compete for depositors' money.

E assumes that the depositors have the knowledge of making decisions and can choose banks but they don't see any financial motive so they are least bothered.

Hope it helps.
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Re: Bank depositors in the United States are all financially [#permalink]

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New post 28 Jun 2013, 05:39
swati007 wrote:
@pqhai,

Hi,

why option D is incorrect?
if X->Y, then assumption could be that Y --x-->X(Y will not cause X)
or A->Y(A will cause Y)
In option D, aint we trying to do this --it assumes other cause (interest rate) as the reason of bank failures?

Someone, Please explain


There is no mention of Interest rate in the passage. Avoid picking questions that introduce something new.
Having said that, the relationship between the Interest rate paid and bank failure is not been spoken about. A lot of critical information would be required to actually determine their relation.
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Re: Bank depositors in the United States are all financially [#permalink]

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New post 28 Jun 2013, 14:18
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swati007 wrote:
@pqhai,

Hi,

why option D is incorrect?
if X->Y, then assumption could be that Y --x-->X(Y will not cause X)
or A->Y(A will cause Y)
In option D, aint we trying to do this --it assumes other cause (interest rate) as the reason of bank failures?

Someone, Please explain


Hi swati007

I'm glad to help.

GENERAL THEORY
First of all, to get a correct answer in assumption question, the first and most important thing is determine conclusions correctly. Please note that, there is a lot of information in an argument, but you just need to attack the question/assumption you're being asked. That makes GMAT more difficult than normal tests.

Back to this question, the argument uses a famous critical thinking logic "Conditional Reasoning".
The form is:
(1) If A, then B
(2) A
(3) Conclusion: Therefore B


Apply to this question:
(1) If depositors were more selective, then banks would need to be secure in order to compete for depositors' money
(2)..............?????
(3) Therefore, banks would need to be secure in order to compete for depositors' money

Now you see the conclusion more clearly ==> The missing part (2) is the assumption. What is (2)? You can apply the form above, and get the assumption very easy: depositors were able to be more selective in determining which bank is secure.

WHY D IS WRONG?
D say: The difference in the interest rates paid to depositors by different banks is not a significant factor in bank failures
Ask yourself: is this the assumption of the conclusion "banks would need to be secure in order to compete for depositors' money". Not at all. The main point of the conclusion is "need more sure to compete for depositors' money". But D talks about "the factor of bank failures". They don't match at any point.


TAKEAWAY:
In Assumption questions, determine the correct conclusions is KEY
There is a lot of info in the argument, Just focus on what you are being asked.

Hope that helps.

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

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New post Updated on: 29 Jun 2013, 09:24
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
The economist's argument makes which of the following assumptions?

(A) Bank failures are caused when big borrowers default on loan repayments.
(B) A significant proportion of depositors maintain accounts at several different banks.
(C) The more a depositor has to deposit, the more careful he or she tends to be in selecting a bank.
(D) The difference in the interest rates paid to depositors by different banks is not a significant factor in bank failures.
(E) Potential depositors are able to determine which banks are secure against failure.

Hi Experts,
What is the Conclusion of the Argument. What is it that author is trying to put forward.
Request you to please decipher the conclusion of this argument.
Regards,
imhimanshu

Originally posted by imhimanshu on 29 Jun 2013, 09:15.
Last edited by Zarrolou on 29 Jun 2013, 09:24, edited 1 time in total.
Merging similar topics.
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Re: Bank depositors in the United States are all financially [#permalink]

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New post 29 Jun 2013, 09:24
imhimanshu 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
The economist's argument makes which of the following assumptions?

(A) Bank failures are caused when big borrowers default on loan repayments.
(B) A significant proportion of depositors maintain accounts at several different banks.
(C) The more a depositor has to deposit, the more careful he or she tends to be in selecting a bank.
(D) The difference in the interest rates paid to depositors by different banks is not a significant factor in bank failures.
(E) Potential depositors are able to determine which banks are secure against failure.

Hi Experts,
What is the Conclusion of the Argument. What is it that author is trying to put forward.
Request you to please decipher the conclusion of this argument.
Regards,
imhimanshu


Conclusion of the argument is:" If depositors were more selective, then banks would need to be secure in order to compete for depositors' money"

This argument does not have conclusion indicator. But this is the conclusion and the author reaches this conclusion using the premise.
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Re: Bank depositors in the United States are all financially [#permalink]

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New post 29 Jun 2013, 09:35
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imhimanshu 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
The economist's argument makes which of the following assumptions?

(A) Bank failures are caused when big borrowers default on loan repayments.
(B) A significant proportion of depositors maintain accounts at several different banks.
(C) The more a depositor has to deposit, the more careful he or she tends to be in selecting a bank.
(D) The difference in the interest rates paid to depositors by different banks is not a significant factor in bank failures.
(E) Potential depositors are able to determine which banks are secure against failure.

Hi Experts,
What is the Conclusion of the Argument. What is it that author is trying to put forward.
Request you to please decipher the conclusion of this argument.
Regards,
imhimanshu


hi,
i am not an expert.... :-D
argument is like this:
let suppose Mr X belongs to US
Now according to argument whatever money MR X deposits in any bank of US....is safe also when bank becomes bankrupt==>this is because all the depositors money are insured by the government. hence you can say MR X never uses his brain in order to select bank for deposition.
now author is saying this is the reason for higher rate of bank failiures.
NOW if government now doesnt insures money of depositors then people like MR X will become selective in choosing bank in order to have more security for their money ....then a competetion will rise among different banks in order to grab customers.

here conclusion is: If depositors were more selective, then banks would need to be secure in order to compete for depositors' money

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

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New post 11 Sep 2016, 06:17
Need help in where i got this wrong...conclusion....insurance is responsible for the high bank failure rates. I interpreted this as causal argument. So shouldn't be the assumption something on the lines of "nothing else causes high failure rates"?
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Re: Bank depositors in the United States are all financially [#permalink]

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New post 07 Jun 2017, 01:44
this question discuss a classical economic issue. The right answer can be easily found.
The question can be summarized as since the government protects the bank, the failure rate of the bank is high. The argument can still be true if without the government, banks have to protect themselves to gain confidence from depositors. As a result, the failure rate is low.
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Re: Bank depositors in the United States are all financially [#permalink]

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New post 13 Jul 2017, 03:34
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.


Reason why the banks are failing: Because the depositors were not concerned with the banks with whom they want to deposit the money. Because there was an insurance. So the assumption is that normally potential depositors are but because there is an insurance, people are not concerned about the bank failure.

The economist's argument makes which of the following assumptions?

(A) Bank failures are caused when big borrowers default on loan repayments.
Not the reason.

(B) A significant proportion of depositors maintain accounts at several different banks.
Not the reason.

(C) The more a depositor has to deposit, the more careful he or she tends to be in selecting a bank.
Classifies against a diffrent types of depositors, where as premise doesn't.

(D) The difference in the interest rates paid to depositors by different banks is not a significant factor in bank failures.
Not the reason.

(E) Potential depositors are able to determine which banks are secure against failure.
Potentially the reason.
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Re: Bank depositors in the United States are all financially [#permalink]

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New post 04 Dec 2017, 12:18
Hi Experts,

In this question
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.

The economist's argument makes which of the following assumptions?

(A) Bank failures are caused when big borrowers default on loan repayments.
(B) A significant proportion of depositors maintain accounts at several different banks.
(C) The more a depositor has to deposit, the more careful he or she tends to be in selecting a bank.
(D) The difference in the interest rates paid to depositors by different banks is not a significant factor in bank failures.
(E) Potential depositors are able to determine which banks are secure against failure.

I see the official answer is E) and it does make sense.
When I solved this question I selected D):

My doubt is that in the question it was mentioned that Insurance is primarily responsible for high rate of bank failures,then would D) be the correct answer as it provides an alternate reason and negation of D would imply that the difference in interest rated is a significant factor in bank failures.

Could you please confirm ?

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

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New post 13 Dec 2017, 20:19
Sakshamachiever wrote:
Hi Experts,

In this question
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.

The economist's argument makes which of the following assumptions?

(A) Bank failures are caused when big borrowers default on loan repayments.
(B) A significant proportion of depositors maintain accounts at several different banks.
(C) The more a depositor has to deposit, the more careful he or she tends to be in selecting a bank.
(D) The difference in the interest rates paid to depositors by different banks is not a significant factor in bank failures.
(E) Potential depositors are able to determine which banks are secure against failure.

I see the official answer is E) and it does make sense.
When I solved this question I selected D):

My doubt is that in the question it was mentioned that Insurance is primarily responsible for high rate of bank failures,then would D) be the correct answer as it provides an alternate reason and negation of D would imply that the difference in interest rated is a significant factor in bank failures.

Could you please confirm ?

Thanks,
Saksham


The economist does not argue that insurance is PRIMARILY responsible for the high rate of bank failures. Rather, the economist argues that the government insurance is PARTLY responsible for bank failures. See how one little word can change the entire meaning?

So it is certainly possible that the difference in interest rates described in choice (D) is a significant factor in bank failures. That does not mean that it is the ONLY factor. Both the government insurance and the difference in interest rates can influence bank failures.

Similarly, diet is a major factor in cholesterol levels. Does that mean that exercise can't also be a factor? Of course not. There can be multiple factors (and even multiple significant factors) affecting the same thing.

Thus, choice (D) is not a required assumption.
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Re: Bank depositors in the United States are all financially [#permalink]

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New post 03 Feb 2018, 23:38
E and C are closed, but E talks about the ability while C talks about "more money".
I have seen two of them in other gmat questions as well.
Re: Bank depositors in the United States are all financially   [#permalink] 03 Feb 2018, 23:38

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