Business are suffering because of a lack of money available for develo

Fact1: Businesses are suffering because of a lack of money available for development loans.
Fact 2: To help businesses, the government plans to modify the income-tax structure in order to induce individual taxpayers to put a larger portion of their incomes into retirement savings accounts
Conclusion: Because as more money is deposited in such accounts, more money becomes available to borrowers.
Weakness: Do the people actually put money in their retirement accounts? This is not the right weakness as it's mentioned in the fact section and not the conclusion section.(hence C is incorrect).

Right Weakness: Money deposited into retirements accounts might not result is more money available to borrowers (Mentioned in the conclusion).
Scan through the choices which states this -
A looks like the closest match.

Businesses are suffering because of a lack of money available for development loans. To help businesses, the government plans to modify the income-tax structure in order to induce individual taxpayers to put a larger portion of their incomes into retirement savings accounts, because as more money is deposited in such accounts, more money becomes available to borrowers.

Which of the following, if true, raises the most serious doubt regarding the effectiveness of the government's plan to increase the amount of money available for development loans for businesses?
(A) When levels of personal retirement savings increase, consumer borrowing always increases correspondingly.
(B) The increased tax revenue the government would receive as a result of business expansion would not offset the loss in revenue from personal income taxes during the first year of the plan.
(C) Even with tax incentives, some people will choose not to increase their levels of retirement savings.
(D) Bankers generally will not continue to lend money to businesses whose prospective earnings are insufficient to meet their loan repayment schedules.
(E) The modified tax structure would give all taxpayers, regardless of their incomes, the same tax savings for a given increase in their retirement savings.


Type: Weaken
Boil It Down: Tax change -> More deposits -> More $ for DEVELOPMENT loans
Missing Information: The plan will work.
Goal: Our goal is to “raise the most serious doubt regarding the effectiveness of the government's plan”. That means we need to select an option that points to a reality in which the government’s goal of facilitating greater capital available for business development loans won’t be achieved. We need to find an option that shows that despite the government's plan, there wouldn’t be an increase in funds available for business development loans specifically.

Ⓐ Yes. This option exposes the truth that when retirement savings increase, CONSUMER borrowing always increases correspondingly. In other words, this option would radically wipe out the hope that increased retirement deposits will boost funds available for DEVELOPMENT borrowing. The capital is likely to get absorbed by consumers instead. Notice that this argument doesn’t entirely destroy the plan, but it absolutely raises a serious doubt regarding the effectiveness of the government’s plan to boost funds available for DEVELOPMENT loans.

Also notice the nasty shift from CONSUMER borrowing to BUSINESS borrowing. The prompt says: "Businesses are suffering because of a lack of money available for development loans." This argument is bluntly stating that the objective is to promote the lending capacity for businesses. So now, according to A, if that new lending capacity spurred on by a boost in savings among individual taxpayers is getting scooped up by consumers (individuals) instead, is this new lending capacity as likely to make it to businesses? No. That's why A weakens the likelihood that the plan will work. This option turns out to be a stunningly awesome demonstration of the degree of precision and engagement we need when we read.

Ⓑ The health of the federal budget is violently Out of Focus to what this question asks us to do. This plan could result in a dramatic cut in revenue for the government, but the government's goal of boosting loans available for business development could still work.

Ⓒ No impact. Nobody is making the claim that EVERYONE will boost retirement savings as a result of the government’s plan, so whether SOME people don’t increase retirement savings is of no consequence to an evaluation of the government’s plan. This option provides no significant information to show that the government’s plan is not likely to succeed.

Ⓓ Trash this option. We have no way to tell how relevant this option is to the government’s plan. If banks won’t lend to businesses that are unlikely to pay the loans on time, the government’s plan to boost lending to businesses in general could still succeed because, for all we know, a substantial share of businesses could still qualify. We just don’t know to what extent this loan condition impacts the lending environment. For this option to be even remotely in play, the test-taker would have to make the unwarranted leap that a substantial volume of businesses can’t meet the loan payment schedules. We can’t make any such leap.

Ⓔ This option introduces a factor that has no clear impact on the likelihood that the government’s plan will work. This option could just as easily help reaffirm the likelihood that the government’s plan would work if it appears a general increase in retirement funds were available. In that interpretation of E, it actually becomes a 180 option.

Bigger GMAT Perspective:
Why is this question statistically so hard? A brutally sneaky shift in focus from CONSUMER lending to BUSINESS lending. What can be done to be able see the magnitude of option A? The most basic GMAT Verbal tenet of all: extremely engaged and careful reading. That's something that takes more discipline (especially when a timer is running, and the adrenaline is flowing) than most people realize. GMAT assassins train to be able to read at optimal 200 WPM pace. It's staggering how much easier the GMAT feels when it's read at optimal speed, and with the right set of engaged reading actions. Test-takers are able to reduce time wasted re-reading, and trim time evaluating the options.

PREMISE: Businesses suffering due to lack development loans
PREMISE: Government's proposed changes will induce taxpayers to put more money into savings accounts
CONCLUSION: This will help businesses
UNWRITTEN CONCLUSION: There will be more money available for BUSINESSES to borrow

As we examine each answer choice, we should ask "Does this weaken the conclusion that there were be more money available for BUSINESSES to borrow?"

(A) When levels of personal retirement savings increase, consumer borrowing always increase correspondingly
Does this weaken the conclusion that there were be more money available for BUSINESSES to borrow?
YES! It says that consumer borrowing will DEFINITELY increase. So, there may NOT be more money available for BUSINESSES to borrow

(B) The increased tax revenue the government would receive as a result of business expansion would not offset the loss in revenue from personal income taxes during the first year of the plan.
Does this weaken the conclusion that there were be more money available for BUSINESSES to borrow?
NO. ELIMINATE

(C) Even with tax incentives, some people will choose not to increase their levels of retirement savings.
Does this weaken the conclusion that there were be more money available for BUSINESSES to borrow?
MAYBE
The key word here is SOME. On the GMAT, "some" means 1 or more.
So, if "some" means one, then we're basically saying that everyone (except for one person) will put more money into retirement savings accounts. Does this weaken the conclusion? No.
Alternatively, if "some" means 99% of the population, then we're saying that almost no one will put more money into retirement savings accounts. Does this weaken the conclusion? Yes.

(D) Bankers generally will not continue to lend money to businesses whose prospective earnings are insufficient to meet their loan repayment schedules.
Does this weaken the conclusion that there were be more money available for BUSINESSES to borrow?
NO. ELIMINATE

(E) The modified tax structure would give all taxpayers, regardless of their incomes, the same tax savings for a given increase in their retirement savings.
Does this weaken the conclusion that there were be more money available for BUSINESSES to borrow?
NO. ELIMINATE

So, we're down to A or C. They're both decent answers.
I'd go with A, because it uses stronger language (consumer borrowing always increases).

Cheers,
Brent

Businesses are suffering so the govt is trying to help them.
So the govt plans to change tax structure to incentivise individuals to put more money in retirement savings accounts (say, by making them tax free etc)

Forecast - More money in such accounts will make more money available to borrowers.

Which options raises doubt that money will become available to businesses using this plan?

(A) When levels of personal retirement savings increase, consumer borrowing always increases correspondingly.

When individuals start saving more, their borrowing increases correspondingly. Then it means that there will not be any extra money for the businesses. The extra money people save will be borrowed away by people. Hence it makes the govt's plan less likely to succeed.

(B) The increased tax revenue the government would receive as a result of business expansion would not offset the loss in revenue from personal income taxes during the first year of the plan.

This option tells us that the govt will suffer financially with this plan. The govt is trying to help businesses. We are not trying to help the govt with this plan so this option is out of scope.

(C) Even with tax incentives, some people will choose not to increase their levels of retirement savings.

'Some' people is irrelevant. As long as some will increase their savings, it may be enough.

(D) Bankers generally will not continue to lend money to businesses whose prospective earnings are insufficient to meet their loan repayment schedules.

Even if bankers will continue to not lend to some type of businesses, it doesn't matter. As long as there is money to lend to eligible businesses, the plan works.

(E) The modified tax structure would give all taxpayers, regardless of their incomes, the same tax savings for a given increase in their retirement savings.

For a given increase in savings, people will get the same tax savings. This means that if anyone saves $100 extra, they will get a tax relief of $10.
So the percentage of tax relief offered on increase in savings is the same for all. This doesn't tell us why the plan may not work. Even if the tax relief is the same for all, if there is a tax relief, people are likely to save more.

Answer (A)

Even I marked C but I doubt the OA in OG. The last line of argument says that -

because as more money is deposited in such accounts, more money becomes available to borrowers.


While A says that -
(A) When levels of personal retirement savings increase, consumer borrowing always increases correspondingly.

This is ambiguous. I think to make this a correct argument, the last line of the passage should have been -
because as more money is deposited in such accounts, more money becomes available to bankers/lenders.


Experts, please comment.

C states 'Even with tax incentives, some people will choose not to increase their levels of retirement savings.'

but that also means some people will choose to increase their levels of retirement savings, hence funds available for borrowing will still increase. and that increase amount will be available for businesses to borrow.

so C doesn't weaken the conclusion .

A states that number of borrowers will increase , this may result in even lesser funds for businesses to borrow than were previously available.

hence A seriously weakens the conclusion

Hi, there. I'm happy to help with this.

The argument:
Businesses are suffering because of a lack of money available for development loans. To help businesses, the government plans to modify the income-tax structure in order to induce individual taxpayers to put a larger portion of their incomes into retirement savings accounts, because as more money is deposited in such accounts, more money becomes available to borrowers.

In a nutshell --- if we tweak the tax system to encourage folks to put more into their retirement accounts, then presto, more money for loans will be available to business.

Prompt:
Which of the following, if true, raises the most serious doubt regarding the effectiveness of the government's plan to increase the amount of money available for development loans for businesses?

So, which answer effectively says -- make those changes to the tax code, and there won't be as much money for loans available to business?

(A) When levels of personal retirement savings increase, consumer borrowing always increases correspondingly.
OK, so when people put more into their retirement, they wind up borrowing more. That would mean, private citizens en masse would be competing with business for that loan money --- that would mean less money for loans available to business. A possible right answer.

(B) The increased tax revenue the government would receive as a result of business expansion would not offset the loss in revenue from personal income taxes during the first year of the plan.
Making this change to the tax code could wind up hurting the government --- interesting, but not relevant to the argument. The argument is strictly about: will business have more money available for loans? What happens to the government is irrelevant to this argument. (B) is out.

(C) Even with tax incentives, some people will choose not to increase their levels of retirement savings.
This argument above is a macroeconomics argument. It's about changes in the entire tax-system, the entire banking system, etc. Of course, not every private citizen will follow the tax incentive. Tax incentives are given with the idea that only a certain percentage of the population will respond to them. So, some private citizens won't respond to the tax incentive. So what? That's 100% predictable, and not relevant to the big macroeconomic argument at hand. (C) is out.

(D) Bankers generally will not continue to lend money to businesses whose prospective earnings are insufficient to meet their loan repayment schedules.
Well, anyone -- a household or a business --- that fails to meet loan payments is not going to be wildly successful getting more loans. That's pretty obvious. There's absolutely nothing in the original argument suggesting that the businesses discussed are so strapped for money that they all are defaulting on their loans. The business are "struggling" insofar as they can't take out loans to fund R&D, which would grow already thriving businesses. My business is making money already, and I want to to R&D to grow it, but there's no money for loans so I can pursue that R&D --- that's the problem we are addressing, according to the original argument. The problem of some business defaulting on their loans --- that's something separate, not relevant to this argument. (D) is out.

(E) The modified tax structure would give all taxpayers, regardless of their incomes, the same tax savings for a given increase in their retirement savings.
Again, this is a macroeconomic argument. What matters it the total revenue taken in by the government. Let's say, because of this tax code change, retirement accounts get an additional $1 billion, and that new money is available for loans to business. That $1 billion could have come from everybody in the whole socioeconomic spectrum making an equal contribution, or it could have come from rich people putting in much much more than middle class people. From the business standpoint, once they have that $1 billion available for loans, they don't give a flying figtree where it came from. From the business point of view, it's completely irrelevant how the government goes about raising that money; the specifics of allocation by various socioeconomic classes doesn't matter at all. (E) is out.

Thus, answer (A) is the only one that poses a direct attack on the argument, so that's the answer.

Does that make sense?

Here's another free CR practice question of a similar type.

https://gmat.magoosh.com/questions/1257

The question at that link should be followed by a free video with a complete explanation of the solution, once you submit you answer.

Let me know if you have any other questions.

Mike

E) .

Thanks am just wondering - if the tax incentives are not good enough to incentivise the richer sections who have the means to contribute more, then there is a possibility that the scheme will not collect as much funds thus reducing the loan'ability' ..

Dear devinawilliam83

That's a good point you make. It's absolutely true that they could do a good job or a not-so-good of designing the tax incentive. It's absolutely true that some not-so-good tax incentive schemes "would give all taxpayers, regardless of their incomes, the same tax savings for a given increase in their retirement savings." But consider this.

First of all, that information is given in the form of a slope or a function. It's not that everyone, regardless of increase in retirement savings, gets a single flat deduction on their taxes. That's not what it's saying. No, rather, everyone gets the same tax savings for each particular given increase in retirement savings. If two people, at different income levels, increase their retirements the same amount, their taxes are decreased the same amount. That doesn't mean that you can't reduce your taxes more by putting more in retirement. This restraint completely leaves open the possibility of: if you save more, you pay less in taxes. For extreme simplicity, let's say that the function is just a 1-to-1 ratio --- that it, for every dollar I increase my retirement savings, I can deduct that dollar from my taxes. Middle income John Q Public puts an extra $600 in retirement, and therefore saves $600 in taxes. If Chester Moneybags also puts an extra $600 in retirement, he also saves $600 in taxes, but if he puts an extra $750,000 in retirement, he saves $750,000 in taxes. Of course, he would be a fool not to do the latter if he could. Sizable deductions (percentage-wise) are relatively plentiful for folks with low or middle income, but when you get into upper echelons of the tax brackets, getting huge percentage deductions is much trickier. If anything, this scheme could wildly motivate the very rich to shovel money into retirement funds.

It's also true that, designing the tax incentive one way, a lot of the increase in retirement funds would come from the middle class (that could actually be a ton of money, if every single middle income household kicks in). Designing the tax incentive another way, a lot of the increase in retirement funds would come from the super-rich. I'm no expert on tax law, but it seems to me that you have the equal tax break for equal increase in retirement funds thing and still have the incentive slant either way. The point it: as long as they get the money they need, it doesn't matter one whit to the businesses how they do it.

It's 100% true that the tax-incentive plan could be incredibly poorly designed and not accomplish its goal. It's also quite true that it could be a work of sheer genius that works flawlessly, raises even more revenue than expected, and makes everyone happy. Either of those could be the case, and we don't know. Simply from knowing "The modified tax structure would give all taxpayers, regardless of their incomes, the same tax savings for a given increase in their retirement savings", we have no idea whether it will be a very well designed or very poorly designed tax package.

IN GMAT CR, when you are asked one of these "which most weakens the argument" questions, you can't afford to get into a sea of hypotheticals. "If (E) is true, and then this, and then also that -- then all of that together would hurt the argument" ---- that's not a recipe for success on these question. When you are asked "which most weakens the argument", one of the five really throws a brick through the argument. Here, that's (A): when middle class folks put more in retirement, they borrow more. BAM. Right there, less money for the businesses. No ambiguity, no hypotheticals. If you find an answer choice in which one possible way to interpret it or one possible way to imagine it playing out hurts the argument, that's not it. You want something that needs as little interpretation as possible: just what it says directly hurts the argument.

Does all this make sense? Please let me know if you have any further questions.

Mike

when consumer borrowing increase, more money may not left for business borrowing.
Does this make sense?

Following up on what robu said, the term "consumer" refers to individuals rather businesses. The prompt says: "Businesses are suffering because of a lack of money available for development loans." This argument is bluntly stating that the objective is to promote the lending capacity for businesses.

So now, according to A, if that new lending capacity spurred on by a boost in savings among individual taxpayers is getting scooped up by consumers (individuals) instead, is this new lending capacity as likely to make it to businesses? No. That's why A weakens the likelihood that the plan will work.

A sound very promising to me but Why not D?? Because if bankers will not lend the money then how Businessman will expand their business?

Hi akashbolster,

I'd be happy to help. Our goal is to “raise the most serious doubt regarding the effectiveness of the government's plan”. That means we need to select an option that points to a reality in which the government’s goal of facilitating greater capital available for business development loans won’t be achieved. We need to find an option that shows that despite the government's plan, there wouldn’t be an increase in funds available for business development loans specifically.

Here's D again (for convenience): Bankers generally will not continue to lend money to businesses whose prospective earnings are insufficient to meet their loan repayment schedules.

We have no way to tell how relevant this option is to the government’s plan. If banks won’t lend to businesses that are unlikely to pay the loans on time, the government’s plan to boost lending to businesses in general could still succeed because, for all we know, a substantial share of businesses could still qualify. We just don’t know to what extent this loan condition impacts the lending environment. For this option to be even remotely in play, the test-taker would have to make the unwarranted leap that a substantial volume of businesses can’t meet the loan payment schedules. We can’t make any such leap.

HI , expert
please explain option E i got stuck in option A & E please, what i have understood about option E that if all taxpayer get the same flat saving incentive then it is most likely that most taxpayer don't deposit money in retirement savings ac as whether they deposit more or less they would get same tax savings, is not it ? please clarify

Hi nks2611, good question! You stated, "whether they deposit more or less they would get same tax savings"; however, notice the wording in choice E...



This does not say that taxpayers will get the same tax savings regardless of how much they deposit in retirement savings accounts; rather, it says that taxpayers will, regardless of their incomes, get "the same tax savings for a given increase in their retirement savings." Therefore, according to choice E, if two taxpayers have different incomes but make identical increases in their retirement savings, then both would get the same tax savings. This does not mean, as I believe you understood, that two taxpayers will get the same tax savings even if the amount by which one increases his/her retirement savings is much greater than that of the other taxpayer. Thus, even if choice E is true, a taxpayer could save more by putting more money into retirement savings accounts.

Business are suffering because of a lack of money available for development loans. To help businesses, the government plans to modify the income-tax structure in order to induce individual taxpayers to put a larger portion of their incomes into retirement savings accounts, because as more money is deposited in such accounts, more money becomes available to borrowers.

Which of the following, if true, raises the most serious doubt regarding the effectiveness of the government's plan to increase the amount of money available for development loans for businesses?

(A) When levels of personal retirement savings increase, consumer borrowing always increases correspondingly. -Correct. If the borrowings of people will also increase, then the money available to business will also be less.

(B) The increased tax revenue the government would receive as a result of business expansion would not offset the loss in revenue from personal income taxes during the first year of the plan. -business expansion is out of scope

(C) Even with tax incentives, some people will choose not to increase their levels of retirement savings. -That means most people will increase their savings, thus strengthening the argument

(D) Bankers generally will not continue to lend money to businesses whose prospective earnings are insufficient to meet their loan repayment schedules. -If bank's won't lend the money then this tax increment is out of question. Out of scope of argument

(E) The modified tax structure would give all taxpayers, regardless of their incomes, the same tax savings for a given increase in their retirement savings. -out of scope