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# Questions 10-11 Household indebtedness, which some theorists

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Questions 10-11 Household indebtedness, which some theorists [#permalink]

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19 Jun 2005, 19:13
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Questions 10-11

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.

10. The argument is structured to lead to which one of the following conclusions?
(A) High levels of household debt did not cause the recent recession.
(B) Low-income households succeeded in paying off their debts despite the recent recession.
(C) Affluent people probably increased their spending levels during the recent recession.
(D) High levels of household debt have little impact on the economy.
(E) When people borrowed money prior to the recent recession, they did not use it to purchase assets.

11. 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 economyâ€™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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20 Jun 2005, 01:54
Another difficult one

my answers are A for the first one and B for the second one...quite dodgy on my reasoning though

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20 Jun 2005, 04:28
A and B

Tough one! I wud be interested in OE.

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20 Jun 2005, 18:24
The OA's are A for both.

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21 Jun 2005, 03:32
WinWinMBA wrote:
The OA's are A for both.

is there an explanation for this..? thnx

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21 Jun 2005, 10:48
for 10 I agree its A...but whats with 11?

for 11,I think B address the root cause, it says asset value was not as high as debt, therefore...people had to pay the diff of debt-asset, thus reducing spendable income...thus reducing demand, thus causing recession....

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Re: Questions 10-11 Household indebtedness, which some theorists [#permalink]

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03 Dec 2016, 01:00
for 11 i think A is out of scope the whole stilumi is about the high&low income how comes the middle-income in the answer?sb. help
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Questions 10-11 Household indebtedness, which some theorists [#permalink]

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03 Dec 2016, 10:08
WinWinMBA wrote:
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.

Let me try this one

The structure of argument:
(1): Some theorists: Household indebtedness caused recession
(2): If low-income households have debt, they might decrese spending to pay off debts
(3): Rich households might not increase spending
(4): (2) + (3) => recession.
(5): However, money is not lent to low-income people without assets and rich households owned most of assests as well as debts.
(6): (4) + (5) => Reason to recession lies elsewhere, or (1) is not true.

10. The argument is structured to lead to which one of the following conclusions?

(A) High levels of household debt did not cause the recent recession.
Correct. This choice restated extracly the argument in (6).
(B) Low-income households succeeded in paying off their debts despite the recent recession.
Out of scope. The passage didn't mention anything about the fact that low-income households could pay off their debts. It's just an assumption in (2)
(C) Affluent people probably increased their spending levels during the recent recession.
Out of scope. The passage said that affluent people tend to decrease their spending.
(D) High levels of household debt have little impact on the economy.
Clearly wrong. The argument said that the household indebtedness didn't cause the recession but it didn't mention anything that the household debts have little impact on the economy.
(E) When people borrowed money prior to the recent recession, they did not use it to purchase assets.
Out of scope.

11. Which one of the following, if true, casts the most doubt on the argument?

Look again the construction of the argument. (5) is delivered to weaken (4) = (2) + (3) to come to the conclusion (6). If we could break down this link, the argument is strongly weakened.

(A) Prior to the recent recession, middle-income households owed enough debt that they had begun to decrease spending.
This one strongly support the assumption (2). Hence, this choice strongly weakens the argument. Also, this choice provides an alternative reason that causes the recession. Middle-income debts --> decrease spending --> recession.
The logic in the argument: not (4) = (5) --> (6)
The logic in this choice: (2) true --> (4) true = not (5) --> not (6).

(B) The total value of the economyâ€™s household debt is exceeded by the total value of assets held by households.
This choice looks good. However, this one is an external information so it isn't necessarily an factor that causes the recession
(C) Low-income households somewhat decreased their spending during the recent recession.
This one somewhat supports the assumption (3) but isn't strong enough to weaken the argument
(D) During a recession the affluent usually borrow money only in order to purchase assets.
This one supports the argument as in (5)
(E) Household debt is the category of debt least likely to affect the economy.
This choice strongly supports the argument that household debts didn't cause the recession.
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Last edited by broall on 03 Dec 2016, 18:48, edited 1 time in total.

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Re: Questions 10-11 Household indebtedness, which some theorists [#permalink]

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03 Dec 2016, 18:03
nguyendinhtuong wrote:
WinWinMBA wrote:
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.

Let me try this one

The structure of argument:
(1): Some theorists: Household indebtedness caused recession
(2): If low-income households have debt, they might decrese spending to pay off debts
(3): Rich households might not increase spending
(4): (2) + (3) => recession.
(5): However, money is not lent to low-income people without assets and rich households owned most of assests as well as debts.
(6): (4) + (5) => Reason to recession lies elsewhere, or (1) is not true.

10. The argument is structured to lead to which one of the following conclusions?

(A) High levels of household debt did not cause the recent recession.
Correct. This choice restated extracly the argument in (6).
(B) Low-income households succeeded in paying off their debts despite the recent recession.
Out of scope. The passage didn't mention anything about the fact that low-income households could pay off their debts. It's just an assumption in (2)
(C) Affluent people probably increased their spending levels during the recent recession.
Out of scope. The passage said that affluent people tend to decrease their spending.
(D) High levels of household debt have little impact on the economy.
Clearly wrong. The argument said that the household indebtedness didn't cause the recession but it didn't mention anything that the household debts have little impact on the economy.
(E) When people borrowed money prior to the recent recession, they did not use it to purchase assets.
Out of scope.

11. 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.
This one supports the argument as in (2)
(B) The total value of the economyâ€™s household debt is exceeded by the total value of assets held by households.
Correct. As in (5), people without assets can't borrow money. This means that the total household debt can't exceed the total value of assets. Hence, this choice clearly weakens the argument.
(C) Low-income households somewhat decreased their spending during the recent recession.
This one also supports the argument as in (3)
(D) During a recession the affluent usually borrow money only in order to purchase assets.
This one supports the argument as in (5)
(E) Household debt is the category of debt least likely to affect the economy.
This choice strongly supports the argument that household debts didn't cause the recession.

the answer fot 11 is A
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Questions 10-11 Household indebtedness, which some theorists [#permalink]

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03 Dec 2016, 18:52
YangYichen wrote:
the answer fot 11 is A

Thanks, I've re-edited my answer The answer is actually A. Maybe I was a little bit tired last night so overlooked the logic and answer A. The structure is: not (4) = (5) --> (6). Hence, choice A clearly supports (2) --> (4) = not (5) --> not (6)
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