Because of an economic downturn in Laconia

Question

Because of an economic downturn in Laconia, annual sales of computer companies decreased by roughly 8 percent over the last two years. Computer manufacturers that supply Laconian computer companies have noticed that the proportion of credit given to computer companies operating in Laconia and not paid off on time sharply increased over the first year of the crisis but returned to its normal level during the second year.
Which of the following, if true, best helps explain why the proportion of credit not paid off on time returned to its normal level during the second year of the economic downturn?

(A) Sales of computer companies specializing in repairing and selling used computers did not decrease during the first year of economic downturn.
(B) During the second year of the economic downturn, many computer companies tried to increase their sales by launching advertising campaigns.
(C) Most computer companies that experienced financial difficulties before the economic downturn closed during its first year.
(D) During the second year of the economic downturn, many computer manufacturers increased the total amount of credit extended to computer companies in Laconia.
(E) At the beginning of the second year, the government of Laconia increased the tax rates for computer companies.

Source: OptimusPrep

Abhishek009 · Answer

During Last 2 Years : Sales decreased by 2% Non repayment of credit on time 1st Year = Sharp Rise 2nd Year = Return to Normal PRETHINKING Helps.... :beat

The reason can be something like : Retailers reduced Credit Purchase / Inventory Level... Check Carefully only (C) matches... If Manufacturers plan to close their unit , they will reduce their inventory level ( Close match to our PRE THINKING ) Hence Answer will be (C)

suramya26 · Answer

HI Abhishek..
Can you tell me WHAT IS THE PROBLEM WITH D?????

VS93 · Answer

IMO the problem with D is the following: The fact that more credit is given to the companies does not mean that the amount of credit not paid off drops. The reasons for not repaying the credit may still remain.

In C: The companies that do not repay the credit are the reason why the rate of unpaid credit rises. If those companies vanish the reason for the risen rate vanishes and it decreases to the former level.

abhishekaqsais · Answer

The answer option (C) talks about company units, and not about manufacturer's unit. Can you clarify further?

Kurtosis · Answer

C states that the companies that were closed had been unprofitable during the first year. During the 2nd year only those companies that were profitable survived and hence were able to pay the credit taken to the banks.

sayantanc2k · Answer

The occurrence that needs to be explained is:
why the proportion of credit not paid off on time returned to its normal level during the second year of the economic downturn?
In other words, why there was a decrease in the number of loan repayment default from first year to second year?

Option D states that more loans were given in the second year. Granting more loans does not help explain why there would be a decrease in the number of repayment defaults from first year to second year. Hence D is wrong.

brs1cob · Answer

C is the correct answer.

most of the computer companies, which were unable to pay the due amount on due date were closed down. only the financially sound companies were left at the end of the second year. hence . proportion came back to normal during the 2nd year.

Prateek176 · Answer

sayantanc2k  Option B is incorrect because merely using advertising may be a possible reason but not a sure shot reason for a decrease in the number of repayment defaults from first year to second year. Is this reasoning accurate??

Ahmed9955 · Answer

We need an explanation that explains the above-highlighted portion.

We are not concerned about one specialized companies in the computer market. - Irrelevant and doesn't explain why the proportion of credit not paid off on time returned to its normal level during the second year of the economic downturn - INCORRECT  
 
  Although companies tried but did they succeed in increasing sales ? Moreover, did the sales made them reach the level where they can repay loans , and even if they did reach, the companies repaid the manufacturers the money on time? - This choice doesn't explain anything. -INCORRECT   .
 
  OK, Suppose there are 10 companies out of which 7 were experiencing financial difficulties already and the rest 3 are doing well.After first year, these 7 companies shut down, now we don't have defaulters, improving and bringing the proportion level to normal. CORRECT  
 
  Increasing the loan amount to companies doesn't tell us whether that amount is returned on time. Also, more loan amount may lead to more delay in repayment. - INCORRECT  
 
  Tax increase may even worsen the situation of companies. Doesn't address why the proportion of credit not paid off on time returned to its normal level during the second year of the economic downturn. INCORRECT

You are what you imagine yourself to be

VerbalBot · Answer

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Because of an economic downturn in Laconia

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