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# QOTD: Business are suffering because of a lack of money

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MBA Section Director
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21 Dec 2017, 12:13
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Verbal Question of The Day: Day 184: Critical Reasoning

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The Official Guide for GMAT Review, 11th Edition, 2005

Practice Question
Question No.: CR 91
Page: 494

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.

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Re: QOTD: Business are suffering because of a lack of money  [#permalink]

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23 Dec 2017, 14:09
4
3
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 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:
(A) When levels of personal retirement savings increase, consumer borrowing always increase correspondingly.

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:
(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.

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:
(C) Even with tax incentives, some people will choose not to increase their levels of retirement savings.

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:
(D) Bankers generally will not continue to lend money to businesses whose prospective earnings are insufficient to meet their loan repayment schedules.

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:
(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.

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.
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##### General Discussion
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Re: QOTD: Business are suffering because of a lack of money  [#permalink]

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21 Dec 2017, 12:27
3
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. -Correct. If the borrowings of people will also increase, then the money available to business will also be less.

(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. -business expansion is out of scope

(C) Even with tax incentives, some people will choose not to increase their levels of retirement savings. -That means most people will increase their savings, thus strengthening the argument

(D) Bankers generally will not continue to lend money to businesses whose prospective earnings are insufficient to meet their loan repayment schedules. -If bank's won't lend the money then this tax increment is out of question. Out of scope of argument

(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. -out of scope
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Re: QOTD: Business are suffering because of a lack of money  [#permalink]

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22 Dec 2017, 08:57
gmatexam439 wrote:
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. -Correct. If the borrowings of people will also increase, then the money available to business will also be less.

(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. -business expansion is out of scope

(C) Even with tax incentives, some people will choose not to increase their levels of retirement savings. -That means most people will increase their savings, thus strengthening the argument

(D) Bankers generally will not continue to lend money to businesses whose prospective earnings are insufficient to meet their loan repayment schedules. -If bank's won't lend the money then this tax increment is out of question. Out of scope of argument

(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. -out of scope

IMO C was the correct one...even when the tax incentive is effective people will choose not put that money into their savings accounts, so as less money is deposited in these accounts, less money becomes available to borrowers...
Can anyone shed some light?
Manager
Joined: 08 Apr 2017
Posts: 83
Re: QOTD: Business are suffering because of a lack of money  [#permalink]

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22 Dec 2017, 09:01
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. - If, by inducing individual tax payers to put a larger portion of their incomes into retirement savings accounts causes consumer borrowing to increase correspondingly, then net change is 0. Hence the plan becomes ineffective.

(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. - Yes. It maybe true that increased tax revenue the government would receive would not offset the loss in revenue from personal income taxes, but this will increase the money available for development loans for businesses.

(C) Even with tax incentives, some people will choose not to increase their levels of retirement savings. - Who cares about those people, who will choose not to increase their levels of retirement savings. If the remaining people choose to increase their level of retirement savings, thats more money for development loans

(D) Bankers generally will not continue to lend money to businesses whose prospective earnings are insufficient to meet their loan repayment schedules. - Does not answer the question about whether the government's plan is effective

(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. - If this is true, this could strengthen the argument.

Hence A weakens the government's plan
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Re: QOTD: Business are suffering because of a lack of money  [#permalink]

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22 Dec 2017, 09:06
1
juanito1985 wrote:
gmatexam439 wrote:
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. -Correct. If the borrowings of people will also increase, then the money available to business will also be less.

(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. -business expansion is out of scope

(C) Even with tax incentives, some people will choose not to increase their levels of retirement savings. -That means most people will increase their savings, thus strengthening the argument

(D) Bankers generally will not continue to lend money to businesses whose prospective earnings are insufficient to meet their loan repayment schedules. -If bank's won't lend the money then this tax increment is out of question. Out of scope of argument

(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. -out of scope

IMO C was the correct one...even when the tax incentive is effective people will choose not put that money into their savings accounts, so as less money is deposited in these accounts, less money becomes available to borrowers...
Can anyone shed some light?

You need to be a little careful here. Its not "effective people will choose not put that money" but "some people will choose not to increase their levels of retirement savings". Some is very important here. C says some will not choose to increase but if the remainder of the people choose to increase, then there is more money available for developmental loans - Does not weaken the plan, does it ?
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Re: QOTD: Business are suffering because of a lack of money  [#permalink]

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22 Dec 2017, 09:18
1
juanito1985 wrote:
gmatexam439 wrote:
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. -Correct. If the borrowings of people will also increase, then the money available to business will also be less.

(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. -business expansion is out of scope

(C) Even with tax incentives, some people will choose not to increase their levels of retirement savings. -That means most people will increase their savings, thus strengthening the argument

(D) Bankers generally will not continue to lend money to businesses whose prospective earnings are insufficient to meet their loan repayment schedules. -If bank's won't lend the money then this tax increment is out of question. Out of scope of argument

(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. -out of scope

IMO C was the correct one...even when the tax incentive is effective people will choose not put that money into their savings accounts, so as less money is deposited in these accounts, less money becomes available to borrowers...
Can anyone shed some light?

Hi juanito1985,

Always read the sentences carefully. "some" changes the meaning. If out of 100 people 5 don't put in the extra money does it weaken the argument? No. Because other 95 would still increase their investment, increasing the overall money available for borrowing. This strengthens the argument.

I hope that helps.

Regards
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2. e-GMAT's ALL SC Compilation
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6. Challange OG RC
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Re: QOTD: Business are suffering because of a lack of money  [#permalink]

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22 Dec 2017, 09:25
gmatexam439 wrote:
juanito1985 wrote:
gmatexam439 wrote:
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. -Correct. If the borrowings of people will also increase, then the money available to business will also be less.

(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. -business expansion is out of scope

(C) Even with tax incentives, some people will choose not to increase their levels of retirement savings. -That means most people will increase their savings, thus strengthening the argument

(D) Bankers generally will not continue to lend money to businesses whose prospective earnings are insufficient to meet their loan repayment schedules. -If bank's won't lend the money then this tax increment is out of question. Out of scope of argument

(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. -out of scope

IMO C was the correct one...even when the tax incentive is effective people will choose not put that money into their savings accounts, so as less money is deposited in these accounts, less money becomes available to borrowers...
Can anyone shed some light?

Hi juanito1985,

Always read the sentences carefully. "some" changes the meaning. If out of 100 people 5 don't put in the extra money does it weaken the argument? No. Because other 95 would still increase their investment, increasing the overall money available for borrowing. This strengthens the argument.

I hope that helps.

Regards

Yes, that makes sense! you are completely right.
Thank you both!
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Re: QOTD: Business are suffering because of a lack of money  [#permalink]

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18 Mar 2018, 07:49
GMATNinja wrote:
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 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:
(A) When levels of personal retirement savings increase, consumer borrowing always increase correspondingly.

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:
(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.

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:
(C) Even with tax incentives, some people will choose not to increase their levels of retirement savings.

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:
(D) Bankers generally will not continue to lend money to businesses whose prospective earnings are insufficient to meet their loan repayment schedules.

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:
(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.

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.

appreciate it

I like qotd
Re: QOTD: Business are suffering because of a lack of money &nbs [#permalink] 18 Mar 2018, 07:49
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