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S92-04

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S92-04 [#permalink]

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Public hospitals are suffering because of a lack of money available for physical expansion projects. To help hospitals, local governments plan to offer municipal bonds with above-average interest rates to induce individuals to buy these bonds, because as local governments get more money from municipal bonds, more money becomes available to public hospitals for physical expansion projects.

Which of the following, if true, raises the most serious doubt regarding the effectiveness of local governments' plan to increase the amount of money available for hospital expansion projects?


A. When local governments increase the interest on municipal bonds, the percentage of government funds allocated to non-expansion government projects increases correspondingly.
B. The increased revenue local governments would receive as a result of offering municipal bonds with above-average interest rates would not offset the loss in revenue from personal income taxes during the first year of the plan.
C. Even with interest rate incentives, some people will choose not to buy the municipal bonds.
D. Individuals will generally not buy high-interest municipal bonds unless these bonds, when repaid, will help them cover home and healthcare payments.
E. The municipal bonds would give all buyers, regardless of how many bonds they purchase, the same interest rate per bond.
[Reveal] Spoiler: OA

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New post 16 Sep 2014, 00:46
Official Solution:


Public hospitals are suffering because of a lack of money available for physical expansion projects. To help hospitals, local governments plan to offer municipal bonds with above-average interest rates to induce individuals to buy these bonds, because as local governments get more money from municipal bonds, more money becomes available to public hospitals for physical expansion projects.

Which of the following, if true, raises the most serious doubt regarding the effectiveness of local governments' plan to increase the amount of money available for hospital expansion projects?


A. When local governments increase the interest on municipal bonds, the percentage of government funds allocated to non-expansion government projects increases correspondingly.
B. The increased revenue local governments would receive as a result of offering municipal bonds with above-average interest rates would not offset the loss in revenue from personal income taxes during the first year of the plan.
C. Even with interest rate incentives, some people will choose not to buy the municipal bonds.
D. Individuals will generally not buy high-interest municipal bonds unless these bonds, when repaid, will help them cover home and healthcare payments.
E. The municipal bonds would give all buyers, regardless of how many bonds they purchase, the same interest rate per bond.


We're told that local governments plan to help fund hospital expansion projects by offering municipal bonds with above-average interest rates, which encourage people to buy these bonds.

The author concludes that if more bonds are purchased, more money will in turn be available for hospital's physical expansion projects.

We're asked to weaken this argument. The local governments' plan supposes that the money invested in municipal bonds will be readily available to hospitals in the form of funds for physical expansion projects. Therefore, to undermine this argument, we need to identify a reason why money might not go to hospital expansion projects.

Choice A states that when local governments offer high-interest municipal bonds, the money given to other projects increases. If this were true, this undermines the assumption that more money will go to hospital expansion projects. Choice A is correct.

Choice B states that the increased money from municipal bonds would not offset the loss in revenue from personal income taxes during the first year of the plan. The goal of the plan is to increase the amount of money available as physical expansion funds for hospitals, so this point is irrelevant to the effectiveness of the plan. Even if point is taken as it is, the losses are limited ONLY for the first year, so even if there was loss of some amount going into expansion projects, it will be only for a year and will become available thereafter

Choice C states that even with interest rate incentives, some people will not purchase municipal bonds. The effectiveness of the plan would be determined not by what some people do, but by what most people do.

Choice D states that people will generally not buy municipal bonds which, when, repaid, do not yield enough money to help them pay significant personal expenses. The plan would increase the money available specifically for hospitals' physical expansion projects, not individuals' personal loans.

Choice E states that municipal bonds would give all buyers, regardless of how many bonds they buy, the same interest rate per bond. The universal interest rate does not affect the effectiveness of the plan.


Answer: A
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Re S92-04 [#permalink]

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I think this is a poor-quality question and I don't agree with the explanation. The problem with option A is that while it cites correlation, it doesn't compare the increases. If additional 100 USD comes in because of the bonds and even 90 USD of that goes towards non expansion projects, 10 would still be available for expansion. So while the non expansion spend in the above example increases correspondingly, it also increases funds available for expansion.

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Re: S92-04 [#permalink]

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New post 23 Nov 2015, 10:13
I agree..what if out of 100 usd 90 usd is still used for expansion project .the question is incorrect.

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Re: S92-04 [#permalink]

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New post 23 Dec 2015, 03:46
jevish wrote:
I agree..what if out of 100 usd 90 usd is still used for expansion project .the question is incorrect.

but doesnt it call into doubt the effectiveness? thats all that matters..

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Re: S92-04 [#permalink]

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New post 18 Jun 2017, 22:30
Can someone please answer why A is Correct & D is Not correct ?

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Re S92-04 [#permalink]

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New post 26 Nov 2017, 06:49
I think this is a high-quality question and I don't agree with the explanation. I chose A because during the test that seemed correct but now when I do the analysis, it seems wrong, because as others have pointed out as well - if the funding is received and the proportion towards non - expansion increases, expansion projects would still receive funding - which could be sufficient for the desired results? C seems to be right, because "Some" could also mean "all"

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Re S92-04   [#permalink] 26 Nov 2017, 06:49
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