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Updated on: 09 Feb 2023, 02:20
Originally posted by zhenmaster on 28 Mar 2008, 12:18.
Last edited by Bunuel on 09 Feb 2023, 02:20, edited 3 times in total.
Last edited by Bunuel on 09 Feb 2023, 02:20, edited 3 times in total.
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A
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
85%
(hard)
Question Stats:
51% (02:05) correct
49%
(02:23)
wrong
based on 13450
sessions
History
Date
Time
Result
Not Attempted Yet
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.
(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.
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.
23 Dec 2017, 14:09
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The government wants to increase the amount of money available for development loans for businesses. How does the government plan to do that?
The government hopes that increasing the money available to borrowers will increase the amount of money available for development loans for business, but is that necessarily the case? We need to select the answer choice that raises the most serious doubt regarding the effectiveness of the government's plan.
Choice (A) tells us that consumer borrowing WILL increase if personal retirement savings increases. So more money will become available for borrowing, but consumers will borrow some or all of that money. That leaves less (if any) money for development loans. It's possible that some of that money will be used for development loans and that the government's plan will still succeed, but choice (A) raises a serious doubt. Hang on to this one.
But this is not what choice (E) says. Rather, it says that taxpayers will, regardless of their incomes, get "the same tax savings for a given increase in their retirement savings." In other words, if two taxpayers have different incomes but make identical increases in their retirement savings, then both would get the same tax savings. Thus, choice (E) does not affect the government's plan to induce individual taxpayers to put a larger portion of their incomes into retirement savings accounts. Eliminate (E).
Choice (A) is the best answer.
- The government plans to modify the income-tax structure.
- The modifications are supposed to induce individual taxpayers to put a larger portion of their incomes into retirement savings accounts.
- As more money is deposited into retirement savings accounts, more money becomes available to borrowers.
The government hopes that increasing the money available to borrowers will increase the amount of money available for development loans for business, but is that necessarily the case? We need to select the answer choice that raises the most serious doubt regarding the effectiveness of the government's plan.
Quote:
The government wants to modify the income-tax structure to make people put more of their income into retirement savings accounts. This should increase the amount of money available to borrowers. But will that money go to development loans for business? What if that money goes to other kinds of loans?
Choice (A) tells us that consumer borrowing WILL increase if personal retirement savings increases. So more money will become available for borrowing, but consumers will borrow some or all of that money. That leaves less (if any) money for development loans. It's possible that some of that money will be used for development loans and that the government's plan will still succeed, but choice (A) raises a serious doubt. Hang on to this one.
Quote:
Choice (B) tells us that the government will suffer a net loss in revenue as a result of this plan. But we are not trying to determine how the plan will impact the government's revenue. We are simply trying to determine whether the plan will succeed in increasing the amount of money available for development loans for businesses. Choice (B) is irrelevant and can be eliminated.
Quote:
It's okay if SOME people chose not to increase their levels of retirement savings. As long as some people DO increase their levels of retirement savings, the government's plan could still work. In other words, we don't need ALL people to increase their savings, only some. Choice (C) does not raise serious doubt and can be eliminated.
Quote:
This is obviously a problem for those businesses whose prospective earnings are insufficient to meet their loan repayment schedules. But we are not concerned with that situation. We simply want to know whether the modifications to the income-tax structure will increase the amount of money available for development loans for business. As long as the amount available for such loans increases, the government's plan will be a success, regardless of whether some businesses can't access that money because they've had problems paying off their loans. Eliminate (D).
Quote:
A possible misunderstanding of choice (E) is to conclude that taxpayers will get the same tax savings regardless of how much they deposit in retirement savings accounts. That might give people less incentive to increase their retirement savings (i.e. "Why should I put more into my retirement savings if it won't increase by tax savings?") and thus jeopardize the government's plan.
But this is not what choice (E) says. Rather, it says that taxpayers will, regardless of their incomes, get "the same tax savings for a given increase in their retirement savings." In other words, if two taxpayers have different incomes but make identical increases in their retirement savings, then both would get the same tax savings. Thus, choice (E) does not affect the government's plan to induce individual taxpayers to put a larger portion of their incomes into retirement savings accounts. Eliminate (E).
Choice (A) is the best answer.
14 May 2010, 12:13
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I picked the wrong OA too.....but after reading thru the explanation I understand that I was wrong.
The premise mean to say that as more money is deposited in such
accounts, more money becomes available to borrowers ( business borrowers).
Now A says that as personal retirement savings increase, consumer borrowing always increases correspondingly.....the important point here is that consumer borrowing is different from business borrowing
The government is intending to increase retirement savings so that businesses can borrow but what if because of increase in retirement savings end consumers borrowing also increases correspondingly....this will defeat the purpose of the plan.
The premise mean to say that as more money is deposited in such
accounts, more money becomes available to borrowers ( business borrowers).
Now A says that as personal retirement savings increase, consumer borrowing always increases correspondingly.....the important point here is that consumer borrowing is different from business borrowing
The government is intending to increase retirement savings so that businesses can borrow but what if because of increase in retirement savings end consumers borrowing also increases correspondingly....this will defeat the purpose of the plan.
