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# Household indebtedness, which some theorists regard as

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Household indebtedness, which some theorists regard as [#permalink]

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16 Jun 2010, 06:40
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22% (02:35) correct 78% (02:09) wrong based on 28 sessions

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Household indebtedness, which some theorists regard as causing recession, was high preceding the recent recession, but so was the value of assets owned by households. Admittedly, if most of the assets were owned by quite affluent households, and most of the debt was owed by low-income households, high household debt levels could have been the cause of the recession despite high asset values: low-income households might have decreased spending in order to pay off debts while the quite affluent ones might simply have failed to increase spending. But, in fact, quite affluent people must have owed most of the household debt, since money is not lent to those without assets. Therefore, the real cause must lie elsewhere.

Which one of the following, if true, casts the most doubt on the argument?
(A) Prior to the recent recession, middle-income households owed enough debt that they had begun to decrease spending.
(B) The total value of the economy's household debt is exceeded by the total value of assets held by households.
(C) Low-income households somewhat decreased their spending during the recent recession.
(D) During a recession the affluent usually borrow money only in order to purchase assets.
(E) Household debt is the category of debt least likely to affect the economy.
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16 Jun 2010, 07:54
The argument relies on the fact that only people with assets will be given loans, to support the contention that affluent people must have accounted for most of household debt, and thus indebtedness could not have caused the recession.

We need to weaken the argument.

E. This actually strengthens the argument, since if household debt doesn't affect the economy, there must have been some other cause for the recession.

D. In a recession, the rich borrow to buy assets. This doesn't really affect the argument, which doesn't talk about the purpose of borrowing.

C. If low-income households decreased their spending "somewhat" this doesn't necessarily mean this was due to household debt, and doesn't allow us to doubt the argument based on this fact.

B. Total value of assets > Household debt. So what? Does this mean the household debt caused or did not cause the recession?

A. This introduces a NEW factor. something that the argument did not consider when it ruled out household debt. If household debt caused MIDDLE income people to decrease spending, this could have caused the recession, and thus casts doubt on the argument.

Pick A.

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16 Jun 2010, 08:02
Your reasoning looks good. Can you elaborate more on this?

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16 Jun 2010, 09:33
Quote:
Household indebtedness, which some theorists regard as causing recession, was high preceding the recent recession, but so was the value of assets owned by households. Admittedly, if most of the assets were owned by quite affluent households, and most of the debt was owed by low-income households, high household debt levels could have been the cause of the recession despite high asset values: low-income households might have decreased spending in order to pay off debts while the quite affluent ones might simply have failed to increase spending. But, in fact, quite affluent people must have owed most of the household debt, since money is not lent to those without assets. Therefore, the real cause must lie elsewhere.

Which one of the following, if true, casts the most doubt on the argument?
(A) Prior to the recent recession, middle-income households owed enough debt that they had begun to decrease spending.
(B) The total value of the economy's household debt is exceeded by the total value of assets held by households.
(C) Low-income households somewhat decreased their spending during the recent recession.
(D) During a recession the affluent usually borrow money only in order to purchase assets.
(E) Household debt is the category of debt least likely to affect the economy.

Tough question, but yeah he's right. Using a diagram thought strategy from GMATPill Study Method, I finally deciphered what this argument is saying.

Step 1: High Household Debt => Recession
Step 2: The above statement could be true if Affluent =>owned Assets; and Low-income =>owned Debt
Step 3: Connect. Low-income => owned Debt => caused Recession

Step 4: Now, with the phrase starting with "But..."
It's offering a counter to the original argument. It is saying
Affluent =>Borrow with assets => Own Debt
rather than
Low-income => Own Debt

Step 5: The bottom line argument is that "Something else" => recession; Not "Low income"=>High household debt => recession

Step 6: To weaken his argument that something else caused the recession, a good way is to say that the other argument is true. That Low-income ppl were the real owners of high household debt which caused the recession.

Step 7: Answer A says middle-income owners owed enough debt to begin to decrease spending. Middle income is not exactly low income but is definitely not high/affluent income people. THis goes along with the "weakening" information we were looking for as outlined in step 6

Got this thinking pattern from GMAT Pill, but I think it's a lot easier to see visually. So can't really show it here.

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20 Jun 2010, 14:56
I was between A and B
I agree with AbhayPrasanna's reasoning and go with A.

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20 Jun 2010, 18:53
AbhayPrasanna wrote:
B. Total value of assets > Household debt. So what? Does this mean the household debt caused or did not cause the recession?

This nails the argument. Only contender to A is B. I wonder if AbhayPrasanna will help us solve more complex questions. I will like him / her to see this thread as well and enlighten us.

dismal-state-96108.html
prehistoric-rock-paintings-96139.html

cheers

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26 Aug 2011, 09:49
AbhayPrasanna wrote:

A. This introduces a NEW factor. something that the argument did not consider when it ruled out household debt. If household debt caused MIDDLE income people to decrease spending, this could have caused the recession, and thus casts doubt on the argument.

Pick A.

Thanks Abhay, great choice!

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Re: Household indebtedness   [#permalink] 26 Aug 2011, 09:49
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# Household indebtedness, which some theorists regard as

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