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# The recent upswing in the economy has brought about a

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Senior Manager
Joined: 05 Apr 2007
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24 Jul 2009, 08:04
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The recent upswing in the economy has brought about a decrease in the proportion of individuals who default on loan payments. In 1985, 17 out of every 100 borrowers defaulted, compared with 11 in 1993. As a result, the number of banks which failed due to unpaid loans declined from 176 in 1985 to 82 in 1993. These statistics lead to the conclusion that the government should no longer be concerned with the lending behavior of the banking industry.

Based on the information in the argument above, which one of the following represents the most valid inference that can be drawn from the passage?

A. The decline in the number of bank failures is directly proportional to the increased rate of repayment.
B. The rate of bank failures has declined in the eight-year period from 1985 to 1993.
C. More people defaulted on loans in 1985 than defaulted in 1993.
D. If the economy keeps getting stronger, then fewer people will default on bank loans.
E. It is less likely that a person would default on a bank loan in 1993 than in 1985.
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24 Jul 2009, 09:38
trainspotting wrote:
The recent upswing in the economy has brought about a decrease in the proportion of individuals who default on loan payments. In 1985, 17 out of every 100 borrowers defaulted, compared with 11 in 1993. As a result, the number of banks which failed due to unpaid loans declined from 176 in 1985 to 82 in 1993. These statistics lead to the conclusion that the government should no longer be concerned with the lending behavior of the banking industry.

Based on the information in the argument above, which one of the following represents the most valid inference that can be drawn from the passage?

A. The decline in the number of bank failures is directly proportional to the increased rate of repayment.
B. The rate of bank failures has declined in the eight-year period from 1985 to 1993.
C. More people defaulted on loans in 1985 than defaulted in 1993.
D. If the economy keeps getting stronger, then fewer people will default on bank loans.
E. It is less likely that a person would default on a bank loan in 1993 than in 1985.

Brutal
E. This looks like the 'safest' bet.

A>> decline is proportional to decreased rate of repayment. OR decline is inversely proportional to increased rate of repayment.
B>> We are not given the total number of banks so we cant say anything about rate of bank failures
C>> Again, we are just given sample data of every 100 borrowers. May be these were already fraud. So we cant say whether in general more people defaulted. Also, we don't know how many multiples of 100 borrowers are there in 1993.
D >> Looks close. We cant say anything about the future. More information is needed to be sure that fewer people WILL default if economy keeps getting stronger.
E >> by POE. Also the first statement tells that "proportion of people who default on loan payments is decreased".

Last edited by Economist on 24 Jul 2009, 10:05, edited 1 time in total.
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Joined: 09 Jul 2009
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24 Jul 2009, 09:55
A,B and D can be negated as per Economist's reasoning.
I was confused between C and E.

Argument talks about rate of default, whereas C is about absolute numbers. Hence C should be negated.
We are left with E.

What is OA?
Senior Manager
Joined: 17 Jul 2009
Posts: 285
Concentration: Nonprofit, Strategy
GPA: 3.42
WE: Engineering (Computer Hardware)

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24 Jul 2009, 16:33
E is the choice...

A. The decline in the number of bank failures is directly proportional to the increased rate of repayment. -inversely proportional
B. The rate of bank failures has declined in the eight-year period from 1985 to 1993. number of banks, not rate
C. More people defaulted on loans in 1985 than defaulted in 1993. -more percentage, not number.
D. If the economy keeps getting stronger, then fewer people will default on bank loans. -didn't say that...
E. It is less likely that a person would default on a bank loan in 1993 than in 1985. only valid choice
Senior Manager
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25 Jul 2009, 00:20
E is the OA.....
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25 Jul 2009, 03:10
E it is.
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Re: Bank Failures   [#permalink] 25 Jul 2009, 03:10
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# The recent upswing in the economy has brought about a

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