Business are suffering because of a lack of money available for development loans. To help businesses, the government plans to...
GMAT Critical Reasoning : (CR) Questions
Business are suffering because of a lack of money available for development loans. To help businesses, the government plans to modify the income-tax structure in order to induce individual taxpayers to put a larger portion of their incomes into retirement savings accounts, because as more money is deposited in such accounts, more money becomes available to borrowers.
Which of the following, if true, raises the most serious doubt regarding the effectiveness of the government's plan to increase the amount of money available for development loans for businesses?
Passage Analysis:
| Text from Passage | Analysis |
| Business are suffering because of a lack of money available for development loans. |
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| To help businesses, the government plans to modify the income-tax structure in order to induce individual taxpayers to put a larger portion of their incomes into retirement savings accounts |
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| because as more money is deposited in such accounts, more money becomes available to borrowers. |
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Argument Flow:
The argument starts with a problem (businesses need development loans but can't get them), then presents the government's solution (change taxes to encourage retirement savings), and finally explains the connection (more retirement savings creates more money for banks to lend out).
Main Conclusion:
The government's plan to modify income taxes to increase retirement savings will help solve the business loan shortage problem.
Logical Structure:
This is a causal chain argument: tax changes → more retirement savings → more available loan money → businesses get needed loans. The government assumes that money flowing into retirement accounts will directly translate into more business development loans.
Prethinking:
Question type:
Weaken - We need to find information that would reduce our belief in the conclusion that the government's plan will effectively increase money available for business development loans
Precision of Claims
The argument makes specific claims about causality: tax changes → more retirement savings → more money available for business loans. The precision lies in this chain of causation and the assumption that retirement account money becomes available for business development loans specifically
Strategy
To weaken this argument, we need to find scenarios that break the logical chain between retirement savings and business development loans. We should look for ways that either: (1) the money in retirement accounts doesn't actually become available for business loans, (2) the connection between retirement savings and loan availability is flawed, or (3) there are other factors that prevent this plan from working as intended
This choice directly attacks the effectiveness of the government's plan. The argument assumes that more money in retirement accounts means more money available for business development loans. However, if increased retirement savings always leads to correspondingly increased consumer borrowing, then banks will need to allocate more funds to consumer loans. This means the additional money from retirement accounts gets offset by increased demand for consumer loans, leaving no net increase (or potentially even a decrease) in funds available for business development loans. This creates serious doubt about whether the plan will work as intended.
This focuses on government tax revenue rather than the availability of money for business loans. The argument isn't about whether the government will make money from this plan - it's about whether businesses will get more development loans. Even if the government loses tax revenue in the first year, this doesn't affect whether banks will have more money to lend to businesses from increased retirement savings deposits.
This acknowledges that not everyone will increase retirement savings, but it doesn't undermine the plan's basic mechanism. The government's plan doesn't require 100% participation to be effective - it just needs some people to increase their retirement savings to put more money into the lending pool. Partial participation doesn't create doubt about the plan's fundamental logic.
This discusses lending criteria and repayment ability, which is about which businesses get loans, not about the total amount of money available for loans. The argument is specifically about increasing the pool of available money for development loans. Even if banks are selective about which businesses qualify, having more money available still addresses the core problem of insufficient funds for development loans.
This addresses fairness and distribution of tax benefits but doesn't question whether the plan will increase money available for business loans. Whether rich or poor people get the same tax incentive doesn't affect the core mechanism of the plan - more retirement savings leading to more available loan funds. The plan's effectiveness doesn't depend on how equitably the tax benefits are distributed.