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

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Re: Business are suffering because of a lack of money available for develo [#permalink]

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20 Jul 2015, 00:55
went with the wrong answer i chose c too, went through all the explanations given, and i still feel c is correct as nowhere is it mentioned the preference of lenders. do they prefer giving money to personal borrowers or commercial borrowers then how can we state that personal borrowing will consume major chunks of money deposited.

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Re: Business are suffering because of a lack of money available for develo [#permalink]

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30 Sep 2015, 10:26
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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.

http://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.

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Re: Business are suffering because of a lack of money available for develo [#permalink]

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28 Dec 2015, 16:03
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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.
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Last edited by EMPOWERgmatMax on 11 Jan 2016, 15:12, edited 1 time in total.

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Re: Business are suffering because of a lack of money available for develo [#permalink]

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30 Dec 2015, 12:59
Fight is between A and C

A wins as if available money increases so do the borrowers , which again leads us to a situation of insufficient funds

C talks about some people not all, that's the catch

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Re: Business are suffering because of a lack of money available for develo [#permalink]

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11 Jan 2016, 09:16
ykaiim wrote:
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.

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

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Re: Business are suffering because of a lack of money available for develo [#permalink]

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11 Jan 2016, 15:07
robu wrote:
ykaiim wrote:
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.

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.
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Re: Business are suffering because of a lack of money available for develo [#permalink]

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24 Feb 2016, 02:45
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Re: Business are suffering because of a lack of money available for develo [#permalink]

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09 Mar 2016, 02:02
Correct choice A

Consumer borrowing is different from Business borrowing. So if consumer also increases then less money will be available for Business borrowing. Clearly a Weaken.

Crossing out choice C as it tells about "Some" and Not all. So if "some people will choose not to increase their levels of retirement savings", then also there will be many people ,who will increase there retirement savings and plan could work out.

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Re: Business are suffering because of a lack of money available for develo [#permalink]

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08 Jun 2016, 21:06
While solving a CR question, it is very easy to forget the main point as to why we are solving this particular question.
Therefore it is always good to read the question stem first and then the passage.

Here we need to weaken the conclusion that more money would be available for the business after the modification of tax structure.

Only Option A does that by saying that the individuals will also start borrowing more, hence no money will be left for the businesses.

Option B is irrelevant

Option C: even if some do not increase the savings, some others will. Hence this does not weaken our conclusion

Option D: This would have been the case always. Obviously bankers would put a criteria before lending out. This criteria would not be affected by the modification of tax structure.

Option E: This again does not talk about the availability of the loan for the businesses. Irrelevant

Correct Option: A
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Re: Business are suffering because of a lack of money available for develo [#permalink]

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11 Aug 2016, 05:44
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?

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Re: Business are suffering because of a lack of money available for develo [#permalink]

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11 Aug 2016, 13:50
akashbolster wrote:
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.
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Re: Business are suffering because of a lack of money available for develo [#permalink]

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11 Aug 2016, 13:56
Thanks for clearing my doubt

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Re: Business are suffering because of a lack of money available for develo [#permalink]

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23 Aug 2016, 22:44
ykaiim wrote:
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.

Yes, but in the question stem, it clearly states that: the plan of the government... for development loans.

Hope it helps!

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Re: Business are suffering because of a lack of money available for develo [#permalink]

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23 Sep 2016, 06:04
Quote:
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.

http://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.

@mikemcgarry

obviously, the explanation of mike who Magoosh

I was confused by D & E at first

now, my view of D, E is
for D
the stem is required to weaken the government's plan, so D OUT directly because D is bank's plan.

for E
E states that government provide a promise for taxpayers,
because we cannot get any info about the link btw promise and loan, I don't think it will impact on the plan.---OUT

on the other hand,
I don't think there is a conclusion in the stimulus, this case is required weaken the plan, which states in stem

FACT:Businesses are suffering because of a lack of money available for development loans.
PLAN: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,
judgement:because as more money is deposited in such accounts, more money becomes available to borrowers.--this one won't be conclusion, because it begin with "because"

stem:most serious doubt regarding the effectiveness of the government’s plan to increase the amount of money available for development loans for businesses

last, here is a range change, it is borrowers in stimulus, but business in stem
aha, there is an indication for choice, because consumers are one kind of borrowers.

that's my approach , please point out if I misunderstanding

thanks a lot
have a nice day
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Re: Business are suffering because of a lack of money available for develo [#permalink]

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20 Oct 2016, 06:30
sagarsabnis wrote:
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.

Please some one explain this...as i am not convinced with the explanation from OG

basically this is the idea of the plan:
change of private income tax -->private sector (people) save more --> more money be available in the bank -> banks will loan more to business

A is only 1 who influence this relationship chain.
if More savings -> more loans in the private sector, then the relationship: "private sector (people) save more --> more money be available in the bank" is weakened, because the extra money created will be consumed by the private sector and not the business sector.

the rest of the answers have no impact on the mentioned chain.

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Re: Business are suffering because of a lack of money available for develo [#permalink]

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26 Oct 2016, 02:34
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Re: Business are suffering because of a lack of money available for develo [#permalink]

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26 Dec 2016, 02:04
Ok, ok, ok. I originally picked the wrong answer, but I understand why A is correct. If consumer borrowing goes up, less money is available for businesses to borrow, so the government's plan is undermined. Tricky.

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Re: Business are suffering because of a lack of money available for develo [#permalink]

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29 Mar 2017, 00:08
Answer A weakens the argument stronger than C.
IMHO: If we omit "some" or substitute it with "most/all" in answer "C" then it would have been stronger weakener than answer "A".

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Re: Business are suffering because of a lack of money available for develo [#permalink]

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29 Mar 2017, 01:10
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

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Re: Business are suffering because of a lack of money available for develo [#permalink]

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06 Apr 2017, 20:13
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Quote:
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...

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(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.

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.
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