Fido10 wrote:
Dear
GMATNinja, please can you help me on this one !
we could still conclude that insurance partially led to failures whether depositors are able to determine risky banks or not !
why do we, MANDATORY, need to assume that consumers are able to determine which are the risky banks, to conclude that insurance partially led to failures !
Does not the first part of argument sufficient to conclude this conclusion ?
Thanks a lot
The argument concludes that the insurance is "partly responsible for the high rate of bank failures." But why? How could an insurance policy
cause a high rate of bank failures?
Well, according to the economist, the insurance
affects how depositors choose banks. In other words, the insurance
causes them to ignore whether a bank is likely to fail or not. This reduces banks' incentive to be secure against failure.
Taking that a step further -- according to the argument, if banks aren't pressured by depositors to secure against failure, they are more likely to fail. Hence, the ultimate effect of the insurance is to make banks in general more likely to fail.
Let's now consider (E):
Quote:
The economist's argument makes which of the following assumptions?
(E) Potential depositors are able to determine which banks are secure against failure.
Notice that this must be true for the argument to hold.
Keep in mind that the argument hinges on the idea that the insurance
affects depositors' behavior. More specifically, the insurance prevents depositors from being selective about which banks to use, which in turn reduces the pressure on banks to secure against failure.
But for all that to be true, we'd need to assume that depositors can
actually differentiate between banks that are secure against failure and those that aren't. Because if depositors
couldn't distinguish between secure and insecure banks, then insurance would have no effect on their behavior.
From another angle: what if we assume that depositors cannot determine which banks are secure? If that were true, then even if the insurance were eliminated, depositors wouldn't reduce their deposits to insecure banks, since they wouldn't know which banks actually ARE insecure. And if that were the case, we couldn't conclude that the insurance is affecting people's behavior, at which point the argument would fall apart.
The bottom line is that for the argument to hold, we'd need to assume that bank depositors actually COULD incentivize banks to be secure. If they couldn't do this, we couldn't blame the insurance. Because even if the insurance were eliminated, people would still deposit in both secure and insecure banks (since they wouldn't be able to tell the difference).
For all those reason, (E) is a necessary assumptions, which makes it correct.
I hope that helps!
is supreme, and there is no point fighting with the OA, but i find (E)lil loose.
to be secure in order to compete for depositors' money.
(E) Potential depositors are able to determine which banks are secure against failure.
So, an analogous to the stimulus: If i were a Roger Federer fan, i would want him to play Wimbledon'24.
Does the stimulus require that i NEED to be a Roger Federer fan? Maybe i am or Maybe i am not, but the conclusion still holds!
language.
I don't understand why i find LSAT LR questions easier than GMAT CR. I have found that GMAT CR answer choices are less than ideal and loose. Moreover, options in LSAT LR are easier to eliminate than in GMAT CR. Are my concerns valid? How do i overcome this? Please guide.