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655-705 Level|   Resolve Paradox|                  
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In the country of Veltria, the past two years' broad economic recessio 25 Feb 2019, 20:01
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generis VeritasKarishma GMATNinja

Though I arrived at the correct answer, can you please explain the meaning of below lines.

Quote:
Clothing wholesalers have found, however, that the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its pre-recession level in the second year.
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How can we imply that the retailers have to repay the amount from the above lines??
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In the country of Veltria, the past two years' broad economic recessio 21 Mar 2019, 19:42
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Hello everyone,

Though I managed to arrive at the correct answer by process of elimination, I couldn't understand the argument properly. Can someone please explain what the process of crediting is? I'd be grateful!
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In the country of Veltria, the past two years' broad economic recessio 21 Mar 2019, 23:18
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Hello everyone,

Though I managed to arrive at the correct answer by process of elimination, I couldn't understand the argument properly. Can someone please explain what the process of crediting is? I'd be grateful!
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I have explained the crediting process here: https://gmatclub.com/forum/in-the-count ... l#p2232683

Let me know if you are still unclear.
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In the country of Veltria, the past two years' broad economic recessio 21 Mar 2019, 23:33
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VeritasKarishma
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In the country of Veltria, the past two years' broad economic recession has included a business downturn in the clothing trade, where sales are down by about 7 percent as compared to two years ago. Clothing wholesalers have found, however, that the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.

Which of the following, if true, most helps to explain the change between the first and the second year of the recession in the proportion of credit not paid off on time?


(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.

(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase.

(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.

(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.

(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession.

- There has been recession in which clothing sales are down by 7% in the last 2 years.
- But, the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.

What is the meaning of the second sentence?
Wholesalers extend credit to retailers i.e. they supply material to retailers but say, have a 90 day credit cycle. After 90 days, the retailers need to pay for the goods given to them by wholesalers. The idea is that the retailers will get time to sell off at least part of the wares and hence get some working capital on hand to pay to the wholesalers. The second sentence tells us that the proportion of credit extended to retailers which was paid off on time (say within 90 days) decreased sharply in first year (presumably because sales of retailers were hit and they did not have enough capital on hand to pay the wholesalers on time) but, the proportion paid back returned to normal levels in year 2 of the recession. This is somewhat unexpected, right? Since recession is still there and sales are down by 7%, one might expect that proportion of credit paid back by retailers on time will stay low.

What explains this change from year 1 to year 2?

(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.

Total amount of credit is irrelevant. We need to compare proportion of credit paid back on time.

(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase.

If costs increased for retailers, they would find it even harder to pay back to wholesalers on time. Why then did things get normal in year 2?

(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.

The retailers facing difficulties (and presumably were unable to pay on time) went out of business in year 1. Hence, only the more stable retailers were left in year 2. This explains why the proportion of pay back on time became normal in year 2.
Correct.

(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.

The sales were down by 7% in year 2. Discounts would have actually led to lower revenue in year 2 and hence it doesn't explain why retailers started paying on time again in year 2.

(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession.

We are talking about the entire industry, not just a section.

Answer (C)
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Hello,
Thank you for your explanation. It is certainly very helpful. However, I have one small doubt...why is the question saying that the “credit extended to the retailers has decreased” instead of the “credit paid by the retailers”
Also, will the retailer pay for all the goods that was given to him by the wholesaler, or will he only pay for the goods that he managed to sell to the customers ?
Thanks in advance ?

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In the country of Veltria, the past two years' broad economic recessio 21 Jan 2020, 06:09
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VeritasKarishma
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In the country of Veltria, the past two years' broad economic recession has included a business downturn in the clothing trade, where sales are down by about 7 percent as compared to two years ago. Clothing wholesalers have found, however, that the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.

Which of the following, if true, most helps to explain the change between the first and the second year of the recession in the proportion of credit not paid off on time?


(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.

(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase.

(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.

(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.

(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession.

- There has been recession in which clothing sales are down by 7% in the last 2 years.
- But, the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.

What is the meaning of the second sentence?
Wholesalers extend credit to retailers i.e. they supply material to retailers but say, have a 90 day credit cycle. After 90 days, the retailers need to pay for the goods given to them by wholesalers. The idea is that the retailers will get time to sell off at least part of the wares and hence get some working capital on hand to pay to the wholesalers. The second sentence tells us that the proportion of credit extended to retailers which was paid off on time (say within 90 days) decreased sharply in first year (presumably because sales of retailers were hit and they did not have enough capital on hand to pay the wholesalers on time) but, the proportion paid back returned to normal levels in year 2 of the recession. This is somewhat unexpected, right? Since recession is still there and sales are down by 7%, one might expect that proportion of credit paid back by retailers on time will stay low.

What explains this change from year 1 to year 2?

(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.

Total amount of credit is irrelevant. We need to compare proportion of credit paid back on time.

Show more

but if the extension is longer then before, then some people can have more time to get money and pay on time, so I think is relative,

VeritasKarishma, would you please help further?

thanks in advance
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In the country of Veltria, the past two years' broad economic recessio 21 Jan 2020, 22:24
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VeritasKarishma
gurpreet07
In the country of Veltria, the past two years' broad economic recession has included a business downturn in the clothing trade, where sales are down by about 7 percent as compared to two years ago. Clothing wholesalers have found, however, that the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.

Which of the following, if true, most helps to explain the change between the first and the second year of the recession in the proportion of credit not paid off on time?


(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.

(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase.

(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.

(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.

(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession.

- There has been recession in which clothing sales are down by 7% in the last 2 years.
- But, the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.

What is the meaning of the second sentence?
Wholesalers extend credit to retailers i.e. they supply material to retailers but say, have a 90 day credit cycle. After 90 days, the retailers need to pay for the goods given to them by wholesalers. The idea is that the retailers will get time to sell off at least part of the wares and hence get some working capital on hand to pay to the wholesalers. The second sentence tells us that the proportion of credit extended to retailers which was paid off on time (say within 90 days) decreased sharply in first year (presumably because sales of retailers were hit and they did not have enough capital on hand to pay the wholesalers on time) but, the proportion paid back returned to normal levels in year 2 of the recession. This is somewhat unexpected, right? Since recession is still there and sales are down by 7%, one might expect that proportion of credit paid back by retailers on time will stay low.

What explains this change from year 1 to year 2?

(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.

Total amount of credit is irrelevant. We need to compare proportion of credit paid back on time.


but if the extension is longer then before, then some people can have more time to get money and pay on time, so I think is relative,

VeritasKarishma, would you please help further?

thanks in advance
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The option says "the total amount of credit extended" i.e. $1000 or $2000 etc. It doesn't mean that it is extended for a longer time period.
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In the country of Veltria, the past two years' broad economic recessio 16 May 2020, 08:09
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We can approach this question as a quant reasoning one with below formula. The first part of the change can be easily understood: because of the economic recession, the financial ability of retailers to pay credits on time is jeopardized thus the proportion "fell sharply" during the 1st year. However the rate returned back to normal during the 2nd year, so something must happen to change the proportion: amount paid on time increased, or total amount of credits reduced or both at the same time.

Proportion =\(\frac{Amount Paid On Time}{Total Amount Of Credits}\)

With that in mind, looking at all choices:

(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.
this means the total amount of credits increased before 2nd year, but we don't know about the amount paid on time. So this very likely result in an even smaller proportion in the 2nd year, incorrectanswer

(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase.
so the operational cost increased for those retailers, that cannot be good for their profitability which directly impact whether they can pay on time and how much (you'll have to assume this relationship). So amount paid on time will likely reduce, while total amount stay the same. The proportion should fall in the 2nd year, incorrect

(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.
this means the total amount of credit will fall in the 2nd year given "virtually all" those having financial difficulties (can't pay on time) went out of business while the ones without issues probably stay the same. Very close to the pre-thinking, keep it

(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.
note the word "attempted" - this means we don't know whether the sales increased because of the discounting, even though it might do the magic. Very weak answer, but I'll keep it for now

(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession.
this answer tells me nothing about the profitability - if some divisions of clothing trade is doing well in the 1st year but the proportion still fall sharply, it won't be a strong factor to bring things back on track in the 2nd year. Incorrect

Then comparing C and D - even though C still lack a logic block to be fully valid "credits will be removed if retailers are out of business", but it's better than D to impact the proportion. D is my final answer.
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In the country of Veltria, the past two years' broad economic recessio 13 May 2022, 20:16
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B and D are out since it extends the gap between wholesalers and retailers.

A and E are out coz these choices talk about part and not the whole industry/argument.

So we have C.
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In the country of Veltria, the past two years' broad economic recessio 26 Sep 2022, 07:28
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KarishmaB
gurpreet07
In the country of Veltria, the past two years' broad economic recession has included a business downturn in the clothing trade, where sales are down by about 7 percent as compared to two years ago. Clothing wholesalers have found, however, that the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.

Which of the following, if true, most helps to explain the change between the first and the second year of the recession in the proportion of credit not paid off on time?


(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.

(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase.

(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.

(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.

(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession.

- There has been recession in which clothing sales are down by 7% in the last 2 years.
- But, the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.

What is the meaning of the second sentence?
Wholesalers extend credit to retailers i.e. they supply material to retailers but say, have a 90 day credit cycle. After 90 days, the retailers need to pay for the goods given to them by wholesalers. The idea is that the retailers will get time to sell off at least part of the wares and hence get some working capital on hand to pay to the wholesalers. The second sentence tells us that the proportion of credit extended to retailers which was paid off on time (say within 90 days) decreased sharply in first year (presumably because sales of retailers were hit and they did not have enough capital on hand to pay the wholesalers on time) but, the proportion paid back returned to normal levels in year 2 of the recession. This is somewhat unexpected, right? Since recession is still there and sales are down by 7%, one might expect that proportion of credit paid back by retailers on time will stay low.

What explains this change from year 1 to year 2?

(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.

Total amount of credit is irrelevant. We need to compare proportion of credit paid back on time.

(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase.

If costs increased for retailers, they would find it even harder to pay back to wholesalers on time. Why then did things get normal in year 2?

(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.

The retailers facing difficulties (and presumably were unable to pay on time) went out of business in year 1. Hence, only the more stable retailers were left in year 2. This explains why the proportion of pay back on time became normal in year 2.
Correct.

(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.

The sales were down by 7% in year 2. Discounts would have actually led to lower revenue in year 2 and hence it doesn't explain why retailers started paying on time again in year 2.

(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession.

We are talking about the entire industry, not just a section.

Answer (C)
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Hi KarishmaB ,
I am still confused between B & C. B says the costs rose between 1 & 2 year, how do we know that it continued to the end of 2 year? Option C talk about retailers who were having financial troubles and a considerable number of "them" went out of business, what if there were only a few who were having financial troubles as opposed to a lot who were financially sound. Did I infer incorrect information from option C?
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In the country of Veltria, the past two years' broad economic recessio 28 Sep 2022, 00:01
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KarishmaB
gurpreet07
In the country of Veltria, the past two years' broad economic recession has included a business downturn in the clothing trade, where sales are down by about 7 percent as compared to two years ago. Clothing wholesalers have found, however, that the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.

Which of the following, if true, most helps to explain the change between the first and the second year of the recession in the proportion of credit not paid off on time?


(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.

(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase.

(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.

(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.

(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession.

- There has been recession in which clothing sales are down by 7% in the last 2 years.
- But, the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.

What is the meaning of the second sentence?
Wholesalers extend credit to retailers i.e. they supply material to retailers but say, have a 90 day credit cycle. After 90 days, the retailers need to pay for the goods given to them by wholesalers. The idea is that the retailers will get time to sell off at least part of the wares and hence get some working capital on hand to pay to the wholesalers. The second sentence tells us that the proportion of credit extended to retailers which was paid off on time (say within 90 days) decreased sharply in first year (presumably because sales of retailers were hit and they did not have enough capital on hand to pay the wholesalers on time) but, the proportion paid back returned to normal levels in year 2 of the recession. This is somewhat unexpected, right? Since recession is still there and sales are down by 7%, one might expect that proportion of credit paid back by retailers on time will stay low.

What explains this change from year 1 to year 2?

(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.

Total amount of credit is irrelevant. We need to compare proportion of credit paid back on time.

(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase.

If costs increased for retailers, they would find it even harder to pay back to wholesalers on time. Why then did things get normal in year 2?

(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.

The retailers facing difficulties (and presumably were unable to pay on time) went out of business in year 1. Hence, only the more stable retailers were left in year 2. This explains why the proportion of pay back on time became normal in year 2.
Correct.

(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.

The sales were down by 7% in year 2. Discounts would have actually led to lower revenue in year 2 and hence it doesn't explain why retailers started paying on time again in year 2.

(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession.

We are talking about the entire industry, not just a section.

Answer (C)

Hi KarishmaB ,
I am still confused between B & C. B says the costs rose between 1 & 2 year, how do we know that it continued to the end of 2 year? Option C talk about retailers who were having financial troubles and a considerable number of "them" went out of business, what if there were only a few who were having financial troubles as opposed to a lot who were financially sound. Did I infer incorrect information from option C?
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We are given that rent and utilities etc cost increased between years 1 and 2. This means that they were lower in year 1 and higher in year 2. There is no reason to assume that the increase happened only for a month. That doesn't make a lot of sense. When rent/utilities etc increase, the increase stays. It takes a a big shift in the economy to decrease them.
All option (B) is saying is that in year 2, costs were higher than they were in year 1.

Note the structure of option (C)

(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.

What does it mean? That of the many stores who were in trouble, almost all were forced to close down. So if 60 stores out of total 100 were in trouble, say 55 were forced to close down. So now there are only 45 stores. We can logically expect then that the competition would have reduced a whole lot and the remaining 45 might have become profitable again.
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In the country of Veltria, the past two years' broad economic recessio 29 Dec 2022, 15:41
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The stimulus says "the proportion of credit extended to retailers" and not "the proportion of retailers" that paid off on time. I don't see how C works that well here. If clothing retailers that had credit extended to, go out of business, then they still defaulted on the credit extended. It didn't magically disappear. I don't see how the proportion of credit extended to retailers overall can get paid off on time any better in Year 2. The retailers that survived would continue to pay back, but all the ones that went out of business would have no contribution towards paying any amount back.
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In the country of Veltria, the past two years' broad economic recessio 17 Jun 2023, 05:56
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To explain the change between the first and second year of the recession in the proportion of credit not paid off on time, we need to identify a factor that had a significant impact during that period. Among the options provided, the one that best explains this change is option (C):

(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.

This option suggests that during the first year of the recession, many clothing retailers in Veltria who were already struggling financially were unable to sustain their businesses and were forced to close down. As a result, these retailers would no longer be eligible to extend credit from clothing wholesalers, which could explain the sharp decrease in the proportion of credit not paid off on time.

In the second year, the proportion of credit not paid off on time returned to its prerecession level because the financially struggling retailers had already gone out of business, leaving behind a more stable pool of retailers who were able to meet their payment obligations.

Options (A), (B), (D), and (E) do not directly address the change in the proportion of credit not paid off on time and are therefore less relevant in explaining the specific scenario described.
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In the country of Veltria, the past two years' broad economic recessio 20 Jul 2024, 09:05
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KarishmaB

- There has been recession in which clothing sales are down by 7% in the last 2 years.
- But, the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.



(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.

The sales were down by 7% in year 2. Discounts would have actually led to lower revenue in year 2 and hence it doesn't explain why retailers started paying on time again in year 2.

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­Hi Karishma. Thanks for the detailed explanation. I feel the question just says 7% down for 2 years combined. So there could have been a very bad 1st year and a good 2nd year (good and bad ONLY from revenue perspective -- more revenue would imply more credits being payed back).

Whereas option C) forces me to make some assumptions about how the proportion of credit payback is calculated, i.e. a bankrupt firm is assumed to be not counted in the denominator. This might be common knowledge for someone who is aware of finance industry but can we really assume this to be true for all proportion definitions?

Please let me know your thoughts. Thanks.
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In the country of Veltria, the past two years' broad economic recessio 25 Jul 2025, 06:54
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