During the recent economic downturn, banks contributed to

Question

During the recent economic downturn, banks contributed to the decline by loaning less money. Prior to the downturn, regulatory standards for making bank loans were tightened. Clearly, therefore, banks will lend more money if those standards are relaxed.

The argument assumes that...

A. The downturn did not cause a significant decrease in the total amount of money on deposit with banks, which is the source of funds for banks to lend.

B. The imposition of the tighter regulatory standards was not a cause of the economic downturn.

C. The reason for tightening the regulatory standards was not arbitrary.

D. No economic downturn is accompanied by a significant decrease in the amount of money loaned out by banks to individual borrowers and to businesses.

E. No relaxation of standards for bank loans would compensate for the effects of the downturn

saikarthikreddy · Answer

option A .the assumption is that when the stricter sanctions are removed ,the banks must still be able to lend money .Hence we need to assume that there should be money in the bank .

goalset · Answer

A it is.
During a economic downturn it is quite possible that banks do not have enough money to lend out.

gmatter0913 · Answer

Could somebody help me on why is B not the answer?

I just did this question from Veritas and I thought both A and B sound like a correct assumption.

GMATPill · Answer

Ask yourself whether (B) affects the argument -- whether (B) in its negated state leads to a negated/opposing conclusion.

B. The imposition of the tighter regulatory standards was not a cause of the economic downturn.

Well, basically the passage is saying:
Before: tight standards --> loan less money + contribute to decline
After: relaxed standards --> argue for "loan more money"

The assumption if TRUE validates the argument
The assumption if NOT true INVALIDATES the argument.

In other words, the assumption has to be a key variable where the argument's validity hinges upon that key variable.

Normal B: Tighter standards WAS NOT a cause of the downturn
Negated B: Tighter standards WAS a cause of the downturn

Impact on Argument: 
Normal B: If "tighter standards" was not a cause of the downturn....well, does knowing these two do not have a causal relationship...does that change anything? Does it strengthen or weaken the argument? No. Let's try the negated version to confirm.
Negated B: Does not affect what happens when "standards" are relaxed. Connection between this statement and what happens when "standards are relaxed" is not clear

Since (B) in its negated state does not lead to an opposing conclusion...(B) does not have a key variable that affects the validity of the argument.

gmatter0913 · Answer

Thank you for a very good explanation.
My reasoning for C was as follows:
When the standards are tightened the banks lent less money, in turn contributing to the recession; now, when the standards are relaxed the banks will be able to lend more money.

Transcendentalist · Answer

I'll Take D

During the recent economic downturn, banks contributed to the decline by loaning less money. Prior to the downturn, regulatory standards for making bank loans were tightened. Clearly, therefore, banks will lend more money if those standards are relaxed.

Economic Downturn - Banks contributed to it by loaning less money

Before Downturn - Regulatory Standards were tightened

Argument - If the standards are relaxed banks will lend more money

Assumption made

D. No economic downturn is accompanied by a significant decrease in the amount of money loaned out by banks to individual borrowers and to businesses.

Even if the regulations were fixed but the above was not true, The banks will still not lend out money...

pqhai · Answer

Hi folks This is a LSAT critical reasoning question, which is about “ defender assumption ”. ANALYZE THE STIMULUS: The form of this question is: Fact: Before downturn, standards for making bank loans were tighten, --> loaning less money during the downturn. Conclusion: if those standards are relaxed, banks will lend more money Two important things: (1) The main reason that makes banks lend less money is “ TIGHTEN REGULATIONS ”, NOT “economic downturn” . (2) The author assumes there is only one factor that make banks lend less money. That is regulatory standards. That also means there is NO OTHER reasons make banks loan less money. This is the core idea of defender assumption, which is introduced in The PowerScore – Critical Reasoning Bible . ANALYZE EACH ANSWER: A. The downturn did not cause a significant decrease in the total amount of money on deposit with banks, which is the source of funds for banks to lend. Correct. This is exactly a defender assumption. A says that the downturn did NOT cause a decrease in the total amount of deposit available for lending <== That could be “other reason” makes banks loan less money. A defends the conclusion by eliminating this probability. Thus, A is correct. B. The imposition of the tighter regulatory standards was not a cause of the economic downturn. Wrong. . VERY TEMPTING. KEY is tighter regulations ==> Loan less money. Keep in mind, economic downturn is NOT a cause of “loan less money” . If you choose B, the logic will be: tighten regulations --> downturn --> bank lend less money. If tighten regulations --> NOT lead to downturn --> banks will NOT lend less money. Thus, you automatically insist that only tighten regulations that lead to downturn make banks lend less money. But we're talking "tighten regulations" in GENERAL. For example , in other periods (does not matter downturn or not downturn), in which regulations are tighten, banks face a lot rules, thus they cannot lend more money. Hence, B is not the assumption of the conclusion “less regulations, banks lend more money”. C. The reason for tightening the regulatory standards was not arbitrary. Wrong. Out of scope. We just talk about the relationship between “tighter regulations” and “loan less money”. Arbitrary or non-arbitrary do not help to buttress the conclusion: less tighten regulations, bank can lend more money. If you’re not sure, let negate C: The reason for tightening the regulatory standards WAS arbitrary. Does it help to support the conclusion above? Not at all. D. No economic downturn is accompanied by a significant decrease in the amount of money loaned out by banks to individual borrowers and to businesses. Wrong. TEMPTING because of the wording. However, it’s wrong. Keep in mind, economic downturn is NOT a cause of “loan less money”. If you vote for D, you automatically insist that “economic downturn” is the main reason to make banks lend less money. But, the main reason is “tighten regulations”. It doesn’t matter which period economic downturn or not downturn. (see example in B). E. No relaxation of standards for bank loans would compensate for the effects of the downturn Wrong. Same as D. If you vote for E, you automatically insist that regualtions affect “economic downturn”, which would be the main reason to make banks lend less money. But, the main reason to make banks lend less money is “tighten regulations”. It doesn’t matter which period economic downturn or not downturn. (see example in B). Hope it helps. PS: OA is A. Please see link below: https://www.lawschooldiscussion.org/inde ... ic=99361.0

Nevernevergiveup · Answer

During the recent economic downturn, banks contributed to the decline by loaning less money. Prior to the downturn, regulatory standards for making bank loans were tightened. Clearly, therefore, banks will lend more money if those standards are relaxed.

The argument assumes that...

A. The downturn did not cause a significant decrease in the total amount of money on deposit with banks, which is the source of funds for banks to lend.

B. The imposition of the tighter regulatory standards was not a cause of the economic downturn.

C. The reason for tightening the regulatory standards was not arbitrary.

D. No economic downturn is accompanied by a significant decrease in the amount of money loaned out by banks to individual borrowers and to businesses.

E. No relaxation of standards for bank loans would compensate for the effects of the downturn

Show Answer

Official Answer

A

This does not help us in knowing whether we can get more money if restrictions are relaxed. D. No economic downturn is accompanied by a significant decrease in the amount of money loaned out by banks to individual borrowers and to businesses. This is too extreme and even if consider the statement still it does not make sense for below reasons. 1. if sth is not accompanied by decrease does not mean that it will increase. 2. also pay attention to word "significant" as it means that not much decrease which makes us doubt that if the decrease is small will that support the conclusion. E. No relaxation of standards for bank loans would compensate for the effects of the downturn Why are we discussing things to compensate for the downturn effects. The subject of concern is loan amount here. Completely out of scope.

Kurtosis · Answer

Premise: Banks loaned less money. Why? Regulatory standards for loans were tightened. 
Conclusion: Banks will lend more money if regulatory standards are relaxed

Clearly A is the answer as it conveys that no other factors were responsible for lending less money and only regulatory standards were responsible for banks to lend less money.

Negate A: The downturn caused a significant decrease in the deposits. - Conclusion breaks down as there is insufficient funds for banks to lend more money even if the regulatory standards are relaxed.

LakerFan24 · Answer

Since this is an ASSUMPTION question, I used the NEGATION technique (see below)

During the recent economic downturn, banks contributed to the decline by loaning less money. Prior to the downturn, regulatory standards for making bank loans were tightened. Clearly, therefore, banks will lend more money if those standards are relaxed. <-- CONCLUSION THAT WE MUST ATTACK: BANKS LEND MORE $ IF REGULATORY STANDARDS ARE RELAXED.

The argument assumes that...

A. The downturn ~~did not~~ cause a significant decrease in the total amount of money on deposit with banks, which is the source of funds for banks to lend.
DOWNTURN caused banks to lend less money, NOT THE RELAXATION OF STANDARDS.

B. The imposition of the tighter regulatory standards was ~~not~~ a cause of the economic downturn.
The cause of the economic downturn = irrelevant, we want to know if banks will lend more $ if regulatory standards are relaxed.

C. The reason for tightening the regulatory standards was ~~not~~ arbitrary.
How does this tell me whether banks will lend more $ if regulatory standards are relaxed?

D. No economic downturn is accompanied by a significant decrease in the amount of money loaned out by banks to individual borrowers and to businesses.
No tie here from amount of money loaned by banks to the economic downturn -- what if this sequence of events is coincidental?

E. No relaxation of standards for bank loans would compensate for the effects of the downturn
How does this tell me whether banks will lend more $ if regulatory standards are relaxed?

Kudos please if you find this helpful

kornn · Answer

Dear  AjiteshArun   IanStewart   VeritasPrepBrian   VeritasKarishma ,

Q1. First off, I have one question on the tense used in the last sentence. Timing is a bit confusing.
 Clearly, therefore, banks will lend more money if those standards are relaxed.

Shouldn't the above sentence be  Clearly, therefore, banks WOULD HAVE lenT more money if those standards HAD BEEN relaxed. ? It should refer to the past event, not the future event as suggested in the question stem.

Q2. Is  the  negated  choice B.  an assumption   of the argument?

B. The imposition of the tighter regulatory standards was NOT a cause of the economic downturn. 
Negated B. The imposition of the tighter regulatory standards was a cause of the economic downturn.

I think the author needs to assume the opposite of choice B. to arrive at the conclusion in the last sentence.

banks contributed to the decline by loaning less money  +  The imposition of the tighter regulatory standards was a cause of the economic downturn  ->  banks will lend more money if those standards are relaxed 
Thank you!

KarishmaB · Answer

The argument is forward looking.

Regulatory standards for loans were tightened.
So during the recession, banks contributed to the decline by loaning less money.

Conclusion: If the standards are relaxed, the banks will loan more money (implying that it might help negate the effects of economic downturn)

We are looking for an assumption.

A. The downturn did not cause a significant decrease in the total amount of money on deposit with banks, which is the source of funds for banks to lend.

Correct. The conclusion is saying that if the standards are relaxed, the banks will loan more money. But do the banks have money to loan? The conclusion is assuming that they do. So the conclusion is assuming that the downturn did not cause significant decrease in the total amount of money on deposit with banks.

B. The imposition of the tighter regulatory standards was not a cause of the economic downturn.

Not an assumption. The argument says that the banks "contributed" to the decline. So the tighter standards was a contributing factor. In what way it contributed, we do not know. Hence it does not assume that the tighter standards was not a cause - whether it triggered the downturn along with some other factors and some additional factors worsened the downturn or some other factors triggered it and the standards worsened the downturn.

C. The reason for tightening the regulatory standards was not arbitrary.

Irrelevant.

D. No economic downturn is accompanied by a significant decrease in the amount of money loaned out by banks to individual borrowers and to businesses.

Let's negate it: Some downturns are accompanied by banks loaning less money. 
Our conclusion can still hold. We don't know what happened in this particular downturn. Did the downturn cause banks to loan less money? We don't know. It is quite possible that the tighter standards caused banks to loan less money and once we relax the standards, the banks will loan out more.

E. No relaxation of standards for bank loans would compensate for the effects of the downturn

Not an assumption. If anything, the argument seems to imply that banks will lend more money and that might be helpful to the economy.

Answer (A)

KarishmaB · Answer

As discussed above, neither (B), nor its negation is an assumption.

kornn · Answer

Dear VeritasKarishma , Thank you for your kind response as always

According to the highlighted portion above, it seems that the negated choice B. is the assumption? The negated choice B = The imposition of the tighter regulatory standards WAS A CAUSE of the economic downturn. IMO, WAS A CAUSE is the same as WAS A CONTRIBUTING FACTOR. The passage says banks contributed to the decline by loaning less money , but it does not explicitly say that the tighter regulatory standards is the underlying cause. Please shed some light Ma'am

KarishmaB · Answer

'Cause' is what kickstarts. 
Banks loaning less money could have made the already existing downturn more severe. 
A contributing factor may not be a contributing factor to the cause. 
By the way, changing the incorrect options and questioning their validity is not a great use of time.

IanStewart · Answer

No one seems to have put it this way in any reply I see above, but this seems to be a slightly complicated variation on the standard cause-effect assumption question. If you argue "X caused Y", you're assuming Y did not cause X. Here we have "banks stopped lending (because of new standards) and that caused a recession". We're naturally then assuming the recession did not cause banks to stop lending. So A is the answer.

kornn · Answer

Dear IanStewart , Thank you for your response. I have one follow-up question. According to the quoted part above, you seem to focus on the first sentence : During the recent economic downturn, banks contributed to the decline by loaning less money. However, is this part a premise and cannot be challenged ? Thank you in advance!

IanStewart · Answer

It's not a premise that the new standards caused the banks to stop lending -- that's the claim of the argument -- but it's because there's an extra premise thrown in that I described the question as a 'variation' on the standard cause-and-effect assumption problem. Here what the argument claims is an effect could very well be a cause, and because that pattern is so common, I thought it would be worthwhile pointing that out.

kornn · Answer

Dear IanStewart , I do agree with your recent response that the highlighted part is a claim because it is the similar to the conclusion from the last sentence of the stimulus. ============================================== However, my confusion is quoted below Why is the first sentence a claim that can be challenged? The author is not talking about any regulatory standards at all in this sentence. He doesn't care why banks stopped lending. He just focuses on the fact that banks stopped lending. So, this every sentence, except the 2nd, is claims? I have been taught that when an answer choice in Assumption question is the same with the information in the stimulus (as is the case), it can't be the correct one

My approach to this question is: The conclusion in the last sentence is in future time frame - an event that does not yet occur. But the premise in the first sentence, which is taken as true, is in the past time frame - an event that already occurred. While "banks stopped lending caused a recession" is true in the past, this isn't necessarily true in the future. Do you have any comment on my reasoning? Thank you!

During the recent economic downturn, banks contributed to

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