GMAT Club Around The World!!! Following a banking crash in the country

Question

Following a banking crash in the country of Econa, the country has faced a recession that has included a contraction of the real estate sector, wherein sales are down by about twelve percent compared to two years ago when the recession began. Real estate firms have found, however, that the proportion of mortgage holders who paid their monthly installments on time fell sharply in the first year of the recession, but the following year it stabilized at its pre-recession level.

Which of the following, if true, most helps to explain the change between the first two years of the recession in the proportion of mortgage holders who paid their monthly installments on time?

A. Of the numerous Econan homeowners facing financial difficulties prior to the recession, almost all defaulted on their mortgages in the first year, surrendering their homes to the lenders.

B. Econan homeowners saw many of their costs, utilities, and taxes in particular, increase between the recession’s first and second years.

C. The total number of mortgage holders increased between the recession’s first and second years.

D. Real estate firms in Econa tried to bolster sales during the recession’s second year by arranging for low-interest mortgages.

E. Those segments of the real estate market that are relatively immune to the effects of a recession, such as the sale of real estate for public works, suffered no drop in sales during the recession’s first year.

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ElninoEffect · Answer

A. Of the numerous Econan homeowners facing financial difficulties prior to the recession, almost all defaulted on their mortgages in the first year, surrendering their homes to the lenders. 
 So after first year only those homeowners were left who were not facing difficulties, hence stabilisation in the rate from the second year since all defaulters were removed in the first year itself.

B. Econan homeowners saw many of their costs, utilities, and taxes in particular, increase between the recession’s first and second years.
 It adds up to the paradox, we are looking to solve it.

C. The total number of mortgage holders increased between the recession’s first and second years.
 It still dose not explain the discrepancy and adds up to the paradox.

D. Real estate firms in Econa tried to bolster sales during the recession’s second year by arranging for low-interest mortgages.
 The question is about discrepancies among already existing mortgage holders + this statement dose not tells us whether or not Real state firms were successful in their endeavour.

E. Those segments of the real estate market that are relatively immune to the effects of a recession, such as the sale of real estate for public works, suffered no drop in sales during the recession’s first year.
 Irrelevant.

100mitra · Answer

Correct Option D

Following a banking crash in the country of Econa, 
the country has faced a recession that has included a contraction of the real estate sector,
wherein sales are down by about twelve percent compared to two years ago when the recession began. 
Real estate firms have found, 
however,  that the proportion of mortgage holders who paid their monthly instalments on time 
fell sharply in the first year of the recession, 
but the following year it stabilized at its pre-recession level .

Which of the following, if true, most helps to explain the change between 
the first two years of the recession in the proportion of mortgage holders 
who paid their monthly installments on time?

A. Of the numerous Econan homeowners facing financial difficulties prior to the recession, 
almost all defaulted on their mortgages in the first year, 
surrendering their homes to the lenders.
 Wrong:  Irrelevant

B. Econan homeowners saw many of their costs, utilities, and taxes in particular, 
increase between the recession’s first and second years.
 Wrong:  Irrelevant

C. The total number of mortgage holders increased 
between the recession’s first and second years.
 Wrong:  this is opposite to the conclusion, if mortgage holder increased, same holders ratio should not be dropped sharply.

D. Real estate firms in Econa tried to bolster sales during the recession’s 
second year by arranging for low-interest mortgages.
 Correct:  This might give some relief to the Mortgages holder, as 1st year of recession, huge impact would have appeared Infront of the mortgage holders , which could reduce the loan paying capabilities, resulted in sharply drop in them, and second year, with lower rate of interest, holders would have encouraged to purchase and let increase in sales.

E. Those segments of the real estate market that are relatively immune to the effects of a recession,
such as the sale of real estate for public works, 
suffered no drop in sales during the recession’s first year.
 Wrong:  This information is not given

ChakAvi · Answer

Following a banking crash in the country of Econa, the country has faced a recession that has included a contraction of the real estate sector, wherein sales are down by about twelve percent compared to two years ago when the recession began. Real estate firms have found, however, that the proportion of mortgage holders who paid their monthly installments on time fell sharply in the first year of the recession, but the following year it stabilized at its pre-recession level.

Which of the following, if true, most helps to explain the change between the first two years of the recession in the proportion of mortgage holders who paid their monthly installments on time?

A. Of the numerous Econan homeowners facing financial difficulties prior to the recession, almost all defaulted on their mortgages in the first year, surrendering their homes to the lenders.  If they had surrendered the homes, then how come in the 2nd yr, payments restored to pre recession level?

B. Econan homeowners saw many of their costs, utilities, and taxes in particular, increase between the recession’s first and second years.  People faced financial trouble, so they decreased loan payment in first year. But still paid in the second like before recession

C. The total number of mortgage holders increased between the recession’s first and second years. As people are under financial trouble, people took mortgages more. So, the amount the company lend is high. But he payment was restored to that level as that of pre-recession. so compay is also suffering

D. Real estate firms in Econa tried to bolster sales during the recession’s second year by arranging for low-interest mortgages. Firms tried to increase sales, is out of scope

E. Those segments of the real estate market that are relatively immune to the effects of a recession, such as the sale of real estate for public works, suffered no drop in sales during the recession’s first year.  Nothing mentioned about the trend in 2nd yr

IMO Answer C

Bunuel · Answer

Experts' Global Official Explanation

Mind-map:  Banking crash leads to recession --> real estate sector contracts --> sales down --> percentage of mortgage holders paying monthly installment on time fell in the first year --> percentage returned to pre-recession level in the second year

Missing-link:  Between the percentage of mortgage holders paying monthly installment on time falling in the first year and the percentage returning to pre-recession level in the second year

Expectation from the correct answer choice:  To explain why the percentage of mortgage holders paying monthly installment on time fell in the first year but returned to pre-recession level in the second year

Note:  Please be extra careful when you see numbers/percentages/proportions in CR questions; often, the key lies in the numbers.

A. Correct.  This answer choice, suggesting that among all the mortgage holders, almost all of those with financial difficulties before the recession defaulted in the first year and surrendered their homes, explains two developments; firstly, it explains that in the first year, owing to worse financial difficulties because of the recession, the proportion of mortgage holders who paid their monthly installments on time declined; secondly, it explains that, in the second year, owing to only financially capable mortgage owners now paying the mortgage, the proportion of mortgage holders who paid their monthly installments on time increased and returned to pre-recession level; overall, this answer choice explains why the percentage of mortgage holders paying monthly installment on time fell in the first year but returned to pre-recession level in the second year. Because this answer choice clarifies the exact discrepancy, this answer choice is correct.

B. If there was an increase in the expenses of homeowners in both the years, the percentage of mortgage holders who paid their monthly installments on time should have been affected similarly in both the years. Further, an “increase in costs” of homeowners in the second year raises further concern over, rather than explains, why the percentage of mortgage holders paying monthly installment on time “increased” in the second year. Overall, this answer choice does not explain the change between the first and the second year of the recession in the proportion of mortgage holders who paid their monthly installments on time. Because this answer choice does not explain the discrepancy in the argument, this answer choice is incorrect.

C. The argument is concerned with the “percentage of mortgage holders paying monthly installments on time” and not with the “total number of outstanding mortgages”; so, this answer choice, suggesting an increase in the total number of mortgage holders over the two years, fails to explain the change between the first and the second year of the recession in the proportion of mortgage holders who paid their monthly installments on time. Because this answer choice does not explain the discrepancy in the argument, this answer choice is incorrect.

D. Trap. This answer choice, suggesting the availability of low-interest mortgages in the second year, indicates a likely increase in the “total number of mortgages” in the second year but provides no information about why the “proportion of mortgage holders who paid their monthly installments on time” increased in the second year. Because this answer choice does not explain the discrepancy in the argument, this answer choice is incorrect.

E. This answer choice, relating to only certain segments of the real estate market, refers to only a part of the entire market and is thus limited in scope. Further, this answer choice relates to the sale of properties and not with the number of mortgages, thus failing to address why the “proportion of mortgage holders who paid their monthly installments on time” increased in the second year. Because this answer choice does not explain the discrepancy in the argument, this answer choice is incorrect.

A is the best choice.

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