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Consumers in California seeking personal loans have fewer

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Consumers in California seeking personal loans have fewer [#permalink]

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New post 03 Dec 2009, 05:41
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A
B
C
D
E

Difficulty:

  55% (hard)

Question Stats:

65% (01:42) correct 35% (01:57) wrong based on 474 sessions

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Consumers in California seeking personal loans have fewer banks to turn to than do consumers elsewhere in the US. This shortage of competition explains why interest rates on personal loans in California are higher than in any other region of the US.

Which of the following, if true, most substantially weakens the conclusion above?

(A) because of the comparatively high wages they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of the services they offer.

(B) personal loans are riskier than other types of loans, such as home mortgage loans, that banks make.

(C) since bank deposits in California are covered by the same type of insurance that guarantees bank deposits in other parts of the US, they are no less secure than deposits elsewhere

(D) the proportion of consumers who default on their personal loans is lower in California than in any other region of the US.

(E) interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the US because in California there is less competition to attract depositors.
[Reveal] Spoiler: OA

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 03 Dec 2009, 09:46
clearly between
[Reveal] Spoiler:
A & D


we need an "alternate explanation"

hence
[Reveal] Spoiler:
A

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 03 Dec 2009, 09:47
In my opinion, Answer is A.

Option A clearly shows another reason why banks in California charge higher interest rates and hence weakens the argument.

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 03 Dec 2009, 10:36
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wolver123 wrote:
Consumers in California seeking personal loans have fewer banks to turn to than do consumers elsewhere in the US. This shortage of competition explains why interest rates on personal loans in California are higher than in any other region of the US. Which of the following, if true, most substantially weakens the conclusion above?

a) because of the comparatively high wages they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of the services they offer. This tells us that the banks in california charge more for some of their services because costs incurred by them are higher than those incurred by banks elsewhere. Thus it gives us a valid alternate reason for higher interest rates.

b) personal loans are riskier than other types of loans, such as home mortgage loans, that banks make. This just tells us that personal loans are riskier in general. If it stated that personal loans are specifically riskier in california then it would've been a contender. Cannot weaken the argument since it provides us with no alternate reason as to why interests rates in california are higher.

c) since bank deposits in California are covered by the same type of insurance that guarantees bank deposits in other parts of the US, they are no less secure than deposits elsewhere. This talks about deposits whereas we are interested in loans. It doesn't even try to relate the two. Not valid due to scope shift.

d) the proportion of consumers who default on their personal loans is lower in California than in any other region of the US. Could be a contender but the reasoning is indirect and doesn't tell us that a lower defaulting rate is directly responsible for higher interest rates on loans. Not valid because reasoning is weak in comparison to choice A.

e) interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the US because in California there is less competition to attract depositors. Again this talks of depositors whereas we are concerned with personal loans. In addition, the reasoning might even strengthen the argument by stressing on the fact that competition is an important factor in deciding interest rates. Not valid because of partial scope shift and partial strengthening of main conclusion.

Explanations please.



Hope this helps.

Answer : A
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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 03 Dec 2009, 12:38
Totally agree - A
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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 04 Dec 2009, 01:08
yup. thanks for the explanations. OA is A

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 23 Jul 2010, 23:30
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Consumers in California seeking personal loans have fewer banks to turn to than do consumers elsewhere in the United States. This shortage of competition among banks explains why interest rates on personal loans in California are higher than in any other region of the United States.
Which of the following, if true, most substantially weakens the conclusion above?

(A) Because of the comparatively high wages they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of me services they offer

(B) Personal loans are riskier than other types of loans, such as home mortgage loans, that banks make.

(C) Since bank deposits in California are covered by the same type of insurance that guarantees bank deposits in other parts of the United States, they are no less secure than deposits elsewhere.

(D) The proportion of consumers who default on their personal loans is lower in California than in any other region of the United States.

(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 24 Jul 2010, 00:29
The biggest fallacy in this argument is it is causal. X -> Y shortage of competition (X) leads to higher (Y) interest rates on personal loans. If there is a reverse trend. i.e. X leads to Negative (Y) then the argument goes for a toss.

The interest rates in CA is not higher than other regions of the US because ......

Perhaps the depositors get lower interest rates since there is lack of competition. The trend reverses and weakens the argument substantially. E is correct.

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 24 Jul 2010, 02:09
E for me too. ..Thanks gauravnagpal

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 24 Jul 2010, 04:47
I chose E because the other options are all out of scope. Can somebody explain why "E"?
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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 24 Jul 2010, 05:33
nusmavrik wrote:
The biggest fallacy in this argument is it is causal. X -> Y shortage of competition (X) leads to higher (Y) interest rates on personal loans. If there is a reverse trend. i.e. X leads to Negative (Y) then the argument goes for a toss.

The interest rates in CA is not higher than other regions of the US because ......

Perhaps the depositors get lower interest rates since there is lack of competition. The trend reverses and weakens the argument substantially. E is correct.


Hi nusmavrik..
I am somehow not be able to understand this ..pls explain it again ...regards

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 24 Jul 2010, 07:46
My bad :wink: . Sorry.

The passage uses a single premise to base the judgement that CA banks have a higher interest rates than those of the banks in most parts of US.
Premise: Lack of competition.
Conclusion : X leads to Y. Lack of competition (X) leads to higher (Y) interest rates on personal loans.

E says there is lack of competition to attract the customers in CA hence interest rates paid by banks to depositors are lower than by banks in other parts of US. Argument is about interest rates on personal loans NOT savings account. Irrelevant.

A says that since the wages of qualified customers in CA are high the banks charge more fee. A is an alternate explanation to Y (high interest rates on personal loans). Z -> Y. This weakens the main conclusion.

Answer should be A.

gauravnagpal wrote:
Hi nusmavrik..
I am somehow not be able to understand this ..pls explain it again ...regards

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 24 Jul 2010, 09:32
I don't agree that OA is E. It should be A.

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 24 Jul 2010, 20:28
Hi Nusmavrik ,mrik
Even I believe E is not the correcr answer but it is ..I donot have any OE for it ..

reg

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 24 Jul 2010, 20:46
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thanks ! I'm looking at this one second day in a row and argument is definitely causal.

There are 3 ways to destroy a causal argument - X leads to Y
1. Alternate explanation : Z leads to Y ----> This is used in this CR
2. Reverse causal hypothesis : Y leads to X
3. Confusing correlation with causation. If you can cast a doubt that argument is a mere correlation, causal argument is destroyed

The worst you can do is contradict a premise. First I thought E contradicts the premise but then GMAT designs question in such a way that choice doesn't look ridiculous. So I guess E is a scope shift.

gauravnagpal wrote:
Hi Nusmavrik ,mrik
Even I believe E is not the correcr answer but it is ..I donot have any OE for it ..

reg

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 24 Jul 2010, 21:44
gud 1 nusmavrik
A is correct. This is a simple causal argument. the author cites shortage aof competetion as the only reason 4 high interest rates. To break this causal link, we could show that another factor explains the reason 4 high int rates.
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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 26 Aug 2010, 20:40
should it be A??...I went for A but gmatprep doesnt give wrong OAs :(

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 28 Aug 2010, 01:25
psychomath wrote:
should it be A??...I went for A but gmatprep doesnt give wrong OAs :(

I am not 100% sure about the source ..( one of my friend gave it to me )

So dont worry about that part .. I posted this becuase I did not agree with the OA ..
So if u picked A , then u are correct .( as explained by NUSMAVRIK)..cheers

cheers

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 01 Sep 2010, 09:18
I think A it is.

E is not correct.

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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New post 02 Sep 2010, 09:00
Bit confused between A and E :-(

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Re: Consumers in California seeking personal loans have fewer   [#permalink] 02 Sep 2010, 09:00

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