Bankruptcy is a process that depends on a variety of structural

Question

Bankruptcy is a process that depends on a variety of structural, fiscal, and human variables. These variables are different at every company. Therefore, the pattern of companies declaring bankruptcy should be random. Yet tax records from 2010 demonstrate a pattern: a large number of companies throughout the United States declared bankruptcy at the same time.

Which of the following, if true, forms the best basis for at least a partial explanation for the pattern of bankruptcy shown by the tax records?

A. Certain financial problems affect only some types of businesses with particular sets of characteristics unique to their industry.

B. Many companies go bankrupt because the economies of the states in which they are located force them to go into gradual but increasing debt.

C. Companies without franchises in more than one country are more likely to declare bankruptcy.

D. From 2005-2015, government loans and intervention changed the pattern of bankruptcy in the United States.

E. Patterns of bankruptcy emerge when widespread economic issues affect numerous companies.

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mithileshk · Answer

Option E

✅ Exactly matches!   
  If  widespread economic problems  (like a recession) affect many companies at once, it explains  why many companies failed together .  
  This  perfectly  matches the 2010 pattern described.

Dereno · Answer

Bankruptcy depends on multiple factors like - structural, fiscal and human variables, their combinations and permutations. The outcome is different, and thus each companies pattern declaring bankruptcy is random and different.

But, in 2010 there emerges a pattern in bankruptcy declaration by large number of companies in USA.

Let’s look into the options :

A. Certain financial problems affect only some types of businesses with particular sets of characteristics unique to their industry.

No Where it’s mentioned, that certain types of businesses were affected in USA by this bankruptcy issue. So, eliminated.

B. Many companies go bankrupt because the economies of the states in which they are located force them to go into gradual but increasing debt.

These are location specific issues. But widespread bankruptcy throughout the USA still remains unanswered. So out of scope.

C. Companies without franchises in more than one country are more likely to declare bankruptcy.

Irrelevant option. Franchises and more likely ( probable event) are two reasons for eliminating this choice.

D. From 2005-2015, government loans and intervention changed the pattern of bankruptcy in the United States.

This options seems convincing but, not strong enough to conclude the end. So let’s hold and look the final option.

E. Patterns of bankruptcy emerge when widespread economic issues affect numerous companies.

This is the answer, wide spread bankruptcy caused due to widespread economic issues, which has impacted numerous businesses. Hence, we can scrap out option D and lock E.

Abhiswarup · Answer

B should be the answer as it aligns with the pattern of companies going bankruptcy. State of the location force them to increase their debt which has led to the end result.

Bunuel · Answer

Official Explanation

Answer = (E). The situation presented in the passage is a case in which bankruptcies should happen at random, but actually occur in patterns. To explain this, we need a reason that many bankruptcies might take place at the same time. (E) is the best answer, as it provides a situation in which a large group of institutions might be affected by more general economic conditions.

(A) would explain why businesses in some industries declared bankruptcy, but not others; it’s not broad enough to explain the widespread nature of the pattern in 2010 described in the passage.

(B) focuses on situations in particular states. Note that the passage as a whole describes conditions in the United States as a whole, and does not focus on smaller regions. (B) is too specific to apply to the situation described in the passage.

(C) shifts the focus to international companies with franchises abroad, which are not what the passage focuses upon; the passage indicates that it is concerned with businesses in the United States.

While government loans and intervention (D) might have affected bankruptcy patterns, this would most likely have occurred after companies were well on their way to bankruptcy, rather than being a cause of this bankruptcy. It is unlikely that governmental steps to alleviate bankruptcy resulted in large number of new bankruptcies!

gullyboy09 · Answer

Hi  KarishmaB ,  MartyMurray  can you please help me with this question here. With E, my issue is that we really don't know if that was a case or not for the year 2010, whereas D at least hints on something happened different than usual during that period.

guddo · Answer

Bankruptcy is a process that depends on a variety of structural, fiscal, and human variables. These variables are different at every company. Therefore, the pattern of companies declaring bankruptcy should be random. Yet tax records from 2010 demonstrate a pattern: a large number of companies throughout the United States declared bankruptcy at the same time.
 
 Which of the following, if true, forms the best basis for at least a partial explanation for the pattern of bankruptcy shown by the tax records?

The passage says bankruptcy should look random because each company has different internal variables. But the records show many companies declared bankruptcy at the same time. To explain this pattern, we need a common external factor that could affect many different companies at once.  The best answer should explain why many unrelated companies could fail around the same time .

A. Certain financial problems affect only some types of businesses with particular sets of characteristics unique to their industry.

This does not explain a nationwide pattern across many companies. It is limited to certain types of businesses.

B. Many companies go bankrupt because the economies of the states in which they are located force them to go into gradual but increasing debt.

This may explain bankruptcy in some states, but it does not clearly explain why many companies across the United States declared bankruptcy at the same time.

C. Companies without franchises in more than one country are more likely to declare bankruptcy.

This identifies a type of company more likely to go bankrupt, but it does not explain the timing pattern.

D. From 2005-2015, government loans and intervention changed the pattern of bankruptcy in the United States.

This is too vague. It says the pattern changed, but it does not explain why many companies declared bankruptcy at the same time.

E. Patterns of bankruptcy emerge when widespread economic issues affect numerous companies.

This is correct. A widespread economic issue could affect many different companies at the same time, even if each company’s internal variables are different. That gives a partial explanation for the observed  nonrandom pattern .

Answer: (E)

KarishmaB · Answer

Option (D) matches words with the argument but is not logical. G overnment loans and intervention could have reduced bankruptcies, not caused them all together. It could be the reason for fewer than expected bankruptcies.

whereas, if widespread economic issues affect numerous companies, then this could indicate all of them failing together. That is why (E) works. It could be the basis for an explanation. Option (D) doesn't explain many companies failing together.

Bankruptcy is a process that depends on a variety of structural

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Bankruptcy is a process that depends on a variety of structural

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