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The downturn in the economy last year has prompted many companies to

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The downturn in the economy last year has prompted many companies to  [#permalink]

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New post Updated on: 19 Sep 2019, 20:53
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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 anticipation 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) How much of their savings, on average, do laid-off employees deplete before finding new employment?

(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?

Originally posted by bipolarbear on 20 Aug 2009, 08:32.
Last edited by Bunuel on 19 Sep 2019, 20:53, edited 4 times in total.
Renamed the topic and edited the question.
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Re: The downturn in the economy last year has prompted many companies to  [#permalink]

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New post 20 Aug 2009, 10:09
3

OFFICIAL EXPLANATION



The conclusion of the argument is that the prediction of decreased consumer spending has not come to pass. The evidence for this is that there has been no corresponding increase in the amount of money set aside in savings accounts by the general public.

This question asks us to choose a question whose answer will provide information relevant to evaluating the significance of the fact that the amount of money placed in savings accounts has not increased. The author mentions this savings pattern to support the claim that people have not been curtailing their discretionary spending. So we need to find a question whose answer will relate to savings and spending patterns.

(A) Information about which business sectors were most affected by the layoffs will not help us establish the relevance of the savings pattern to the claim.

(B) The savings used by those who are laid off has no bearing on the savings patterns of those who are not laid off, which is the group this argument addresses ("even if their jobs were secure").

(C) CORRECT. This question asks about the prices of necessities such as food and utilities. If people have not been saving their money, perhaps they have been spending it on necessities (as opposed to spending it on discretionary items). If these items have become more expensive, then perhaps people have not been able to save money despite curtailing their discretionary spending.

(D) The percentage of people with savings accounts is not related to the question of whether people have curtailed their discretionary spending or increased the amount they save.

(E) Knowing the statistics for average salaries during the period since the layoffs will not help us evaluate the significance of the spending and savings patterns during that time. It might help to be able to compare the statistics for the periods before and after the layoffs, but knowing just one of those statistics tells us nothing about the trends.[/spoiler]
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Re: The downturn in the economy last year has prompted many companies to  [#permalink]

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New post 08 Apr 2010, 03:38
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C
though the layoffs have taken place it is necessary to know whether the prices of necessities have increased or decreased. Suppose the price of necessities has decreased. thus in spite of layoffs, general public would not feel the need to go for extra savings as now the necessities are cheaper.
On the other hand if necessities are dearer than the extra savings may be used up.

Thus this question (C) gives the criteria to evaluate the saving pattern which of course has not come to pass :)
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Re: The downturn in the economy last year has prompted many companies to  [#permalink]

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New post 08 Apr 2010, 13:12
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Should be (C).

downturn in economy ==> caused lay offs ==> lost of jobs

economist predicted that people will cut back in discretionary spneding in anticipation of hard times

prediction was wrong because people did not have any money inh savings account.

What would be important in finding out why people do not have money in savings a/c?

What business sectors were most affected by the layoffs? - does not help
How much of their savings, on average, do laid-off employees deplete before finding new employment? - we are talking about general public
What has been the percent increase in the cost of necessities such as food, housing, and utilities during the period since the layoffs? - Correct
What percentage of people laid off have savings accounts? - we are talking about general public
What has been the average salary during the period since the layoffs? - average salary alone will not help unless we have something more to compare with average salary
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Re: The downturn in the economy last year has prompted many companies to  [#permalink]

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New post 03 Apr 2011, 00:22
I think C is vulnerable since the economy is not doing good. Hence the cost of the necessities are likely to go up. So the decision on just the percentage increase in the costs to evaluate the spending pattern of people is half baked. A more thorough analysis is the spending patterns on the items itself. Since the argument leaves the logical gap to connect the cost of the items with the spending pattern for those items, it is unconvincing. If this is a gmat question I will send the question for reevaluation by the designers. I may sound stilted but a true gmat question has a overwhelming unambiguous answer.
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Re: The downturn in the economy last year has prompted many companies to  [#permalink]

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New post 18 May 2012, 23:58
Argument states :
there has been no increase in the amount of money set aside by the general public in savings accounts even though people may have cut on discretionary spending.

To validate this argument what would be most useful to know is :
Whether people have to spend same amount of money that they used to earlier on necessary things.

Option C does precisely that by explaining that prices of necessary commodities have increased in the period since layoffs.
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Re: The downturn in the economy last year has prompted many companies to  [#permalink]

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New post 25 Jun 2012, 06:24
Correct answer is C.

It provides an alternative explanation to why savings rate are not going up, i.e. possibly because prices of food and other necessities are going up, people are using monies that could have been saved for this increased expenditures.

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Re: The downturn in the economy last year has prompted many companies to  [#permalink]

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New post 14 Sep 2014, 06:57
Hi Thanks for sharing the question.
My 2 cents.
The downturn in the economy last year has prompted many companies to make widely publicized layoffs, resulting in thousands of lost jobs.

Economists predicted:layoffs would cause people generally to cut back on their discretionary spending even if their jobs were secure, in anticipation of coming hard times.
(Conc:)this prediction has not come to pass,
(Why?)since there has been no increase in the amount of money set aside by the general public in savings accounts.
Assumption: There is no factor that is eating their saving.

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

What business sectors were most affected by the layoffs?
How much of their savings, on average, do laid-off employees deplete before finding new employment?
What has been the percent increase in the cost of necessities such as food, housing, and utilities during the period since the layoffs?
What percentage of people laid off have savings accounts?
What has been the average salary during the period since the layoffs?

B Vs C:
How much of their savings, on average, do laid-off employees deplete before finding new employment?
>> Two points why C is better than B: a: average & b:laid-off employees.
Prediction is abt the general public not only abt a specific segment. Second, average doesn't give required info abt peoples' saving behavior. It's just that some ppl's saving depletion was below average and some above.
What has been the percent increase in the cost of necessities such as food, housing, and utilities during the period since the layoffs?
>>Correct .This will answer whether is any factor that is eating their saving.
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Re: The downturn in the economy last year has prompted many companies to  [#permalink]

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New post 18 Aug 2019, 13:12
bipolarbear wrote:
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 anticipation 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. How much of their savings, on average, do laid-off employees deplete before finding new employment?

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?


Let s use variance test to solve this problem.

"Discretionary spending" means money spent on non-essential items such as luxury items , vacationing etc...
The conclusion :- "this prediction has not come to pass,".
What was the prediction ?
Prediction :- " layoffs would cause people generally to cut back on their discretionary spending...".

So the conclusion becomes :- People still do a lot of "discretionary spending".

Option C states that "What has been the percent increase in the cost of necessities such as food, housing, and utilities during the period since the layoffs?"

Yes...The cost of necessities has been very high.
Then the conclusion i.e "People still do a lot of "discretionary spending"." CAN NOT follow. Because then the people's almost entire money will be spent on necessary items.

No...The cost of necessities has NOT been very high.
Then the conclusion i.e "People still do a lot of "discretionary spending"." CAN follow.
People can have some money left to spend on "discretionary items".

YES/NO HURT S / HELPS the conclusion.
So "variance" test satisfies.
So Option C is the answer.
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Re: The downturn in the economy last year has prompted many companies to   [#permalink] 18 Aug 2019, 13:12
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