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The downturn in the economy last year has prompted many

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Director
Joined: 02 Mar 2006
Posts: 575
Location: France
The downturn in the economy last year has prompted many [#permalink]

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15 Oct 2006, 12:08
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The downturn in the economy last year has prompted many companies to make widely publicized layoffs, resulting in thousands of lost jobs. Economists predicted that these layoffs would cause people generally to cut back on their discretionary spending even if their jobs were secure, in fear of coming hard times. However, this prediction has not come to pass, since there has been no increase in the amount of money set aside by the general public in savings accounts.

The answer to which of the following questions would be most useful in evaluating the significance of the savings patterns described above?

A.What business sectors were most affected by the layoffs?
B.What were the savings patterns of the general public before the layoffs?
C.What has been the percent increase in the cost of necessities such as food, housing, and utilities during the period since the layoffs?
D.What percentage of people laid off have savings accounts?
E.What has been the average salary during the period since the layoffs?
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Senior Manager
Joined: 30 Aug 2006
Posts: 374

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15 Oct 2006, 12:22
C) if discretionary spending is being cut by increases in essential costs, then this would explain why there has been no increase in savings

A) irrelevant
B) we know they have stayed roughly similar, so also irrelevant
C)
D) who cares
E) could be useful, if average salaries are dropping then this would explain reduction in discretionary spending, however this may be hard to quantify due to the reduction in average salary caused by layoffs. C gives a more concrete reason why savings pattern has not changed than this.
SVP
Joined: 05 Jul 2006
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15 Oct 2006, 13:49
I think B
Director
Joined: 17 Jul 2006
Posts: 706

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15 Oct 2006, 15:55
C talks about the cost of necessities . We will not get answers from it.

B seems to be the better one .
Intern
Joined: 14 Oct 2006
Posts: 4
Location: Virginia

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15 Oct 2006, 16:11
since the passage states that there has been "no increase in money saved" and the passage askes us what question will help us evaluate that statement, than if we knew what the savings patterns were before layoffs than it would be helpful to evaluate the final statement.

B for me!
Director
Joined: 18 Jul 2006
Posts: 524

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15 Oct 2006, 16:36
Chose B.
VP
Joined: 25 Jun 2006
Posts: 1166

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15 Oct 2006, 19:16
B 2
VP
Joined: 21 Aug 2006
Posts: 1016

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15 Oct 2006, 19:33
londonluddite wrote:
C) if discretionary spending is being cut by increases in essential costs, then this would explain why there has been no increase in savings

A) irrelevant
B) we know they have stayed roughly similar, so also irrelevant
C)
D) who cares
E) could be useful, if average salaries are dropping then this would explain reduction in discretionary spending, however this may be hard to quantify due to the reduction in average salary caused by layoffs. C gives a more concrete reason why savings pattern has not changed than this.

I can't imagine inflation (increase in costs of basic necessities) when there are wide spread lay offs. If we get back to basics of economics, inflation usually results when too much money is chasing too few goods. That wont be the case when there are wide spread layoffs. So C is ruled out for me.

B can't be the answer. What is the need for understanding saving patterns, when the argument is saying that "there has been no increase in the amount of money set aside by the general public in savings accounts" what else do they mean by saving patterns?

E seem to be the answer. The highlighted text above gives reason, but says it can't be quantified. There are more than one ways to quantify average salary. Many market research organizations quantify average salaries. Often governments also calculate that. US government, I am sure does that.
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Last edited by ak_idc on 16 Oct 2006, 07:48, edited 2 times in total.
Intern
Joined: 14 Oct 2006
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Location: Boston

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15 Oct 2006, 19:42
what's OA ?
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Director
Joined: 23 Jun 2005
Posts: 841
GMAT 1: 740 Q48 V42

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15 Oct 2006, 21:37
B and C are both close, but I will go with C.

B.What were the savings patterns of the general public before the layoffs?
Did people primarily use savings accounts to save money or did they use other modes - maybe bonds?

C.What has been the percent increase in the cost of necessities such as food, housing, and utilities during the period since the layoffs?
If the cost of necessities has risen steeply since the layoffs, then the general public may not have money to save.
Senior Manager
Joined: 14 Jul 2006
Posts: 326

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15 Oct 2006, 22:52
anandsebastin wrote:
B and C are both close, but I will go with C.

B.What were the savings patterns of the general public before the layoffs?
Did people primarily use savings accounts to save money or did they use other modes - maybe bonds?

C.What has been the percent increase in the cost of necessities such as food, housing, and utilities during the period since the layoffs?
If the cost of necessities has risen steeply since the layoffs, then the general public may not have money to save.

I disagree anand.The argument goes from savings(in whatevr instruments they be ) to savings in savings accounts.
Until and unless we know that people save in savings accounts the argument cannot be evaluated.
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VP
Joined: 21 Mar 2006
Posts: 1127
Location: Bangalore

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15 Oct 2006, 23:03
One more for C. B is very close though. what got me were...

Economists predicted that these layoffs would cause people generally to cut back on their discretionary spending even if their jobs....
AND
What has been the percent increase in the cost of necessities such as food, housing...
Senior Manager
Joined: 11 Jul 2006
Posts: 380
Location: TX

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16 Oct 2006, 08:08
One more for C

It might explain why people still have less in savings and imply that even though people cut back on discretionary spending they are unable to save less due to increase in costs of basic neccesities.
Manager
Joined: 31 Aug 2006
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30 Oct 2006, 14:20
(C)
Manager
Joined: 29 Jul 2006
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30 Oct 2006, 20:19
OA should be C
Director
Joined: 24 Aug 2006
Posts: 745
Location: Dallas, Texas

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30 Oct 2006, 21:48
people are cutting back discretionary spending such as eating out in good restaurants, vacations etc but still there is no saving. Why ? because the inflation is eating the extra saving ...

(C) works for me ....
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Director
Joined: 02 Mar 2006
Posts: 575
Location: France

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31 Oct 2006, 02:09
Sorry, I forgot to give the OA, which is C.
VP
Joined: 25 Jun 2006
Posts: 1166

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31 Oct 2006, 05:55
hmm. C is better.

B's "before layoff" is not good. it has not much to do with the savings pattern after the layoff.
31 Oct 2006, 05:55
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