Since it has become known that several of a bank's top executives have been buying shares in their own bank,...

GMAT Critical Reasoning : (CR) Questions

Source: Official Guide

Critical Reasoning

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Since it has become known that several of a bank's top executives have been buying shares in their own bank, the bank's depositors, who had been worried by rumors that the bank faced impending financial collapse, have been greatly relieved. They reason that, since top executives evidently have faith in the bank's financial soundness, those worrisome rumors must be false. Such reasoning might well be overoptimistic, however, since corporate executives have been known to buy shares in their own company in a calculated attempt to dispel negative rumors about the company's health.

In the argument given, the two boldfaced portions play which of the following roles?

The first describes evidence that has been taken as supporting a conclusion; the second gives a reason for questioning that support.

The first describes evidence that has been taken as supporting a conclusion; the second states a contrary conclusion that is the main conclusion of the argument.

The first provides evidence in support of the main conclusion of the argument; the second states that conclusion.

The first describes the circumstance that the argument as a whole seeks to explain; the second gives the explanation that the argument seeks to establish.

The first describes the circumstance that the argument as a whole seeks to explain; the second provides evidence in support of the explanation that the argument seeks to establish.

Solution

Understanding the Passage

Text from Passage	Analysis
"Since it has become known that several of a bank's top executives have been buying shares in their own bank" (Boldface 1)	What it says: Bank executives are purchasing stock in their own company Visualization: 5 top executives at ABC Bank each bought 1,000 shares of ABC Bank stock at $50/share, investing $50,000 each What it does: This establishes a key fact that will drive other people's reasoning Source: Author stating an established fact
"the bank's depositors, who had been worried by rumors that the bank faced impending financial collapse, have been greatly relieved"	What it says: Bank customers were scared the bank might fail, but now they feel much better Visualization: 10,000 depositors were worried about losing their $500 million in deposits, but now feel their money is safe What it does: This shows the reaction/effect of the executives buying shares Source: Author describing depositors' response
"They reason that, since top executives evidently have faith in the bank's financial soundness, those worrisome rumors must be false"	What it says: Depositors think: if executives believe in the bank enough to invest their own money, the bank must be healthy Visualization: Depositors logic: "CEOs invested $250,000 total → They wouldn't risk their money if bank was failing → Bank must be safe" What it does: This explains the depositors' logical reasoning for feeling relieved Source: Author explaining depositors' reasoning
"Such reasoning might well be overoptimistic, however"	What it says: The author thinks the depositors' conclusion might be too positive/trusting Visualization: Depositors confidence level went from 30% to 90%, but author thinks 60% would be more realistic What it does: This signals the author is about to challenge the depositors' reasoning Source: Author's own view
"since corporate executives have been known to buy shares in their own company in a calculated attempt to dispel negative rumors about the company's health" (Boldface 2)	What it says: Company executives sometimes buy their own stock specifically to make people think the company is doing well, even when it might not be Visualization: At XYZ Corp in 2019, executives bought $1 million in stock not because company was healthy, but to stop stock price from falling from $40 to $25 What it does: This provides evidence for why the depositors' reasoning might be flawed Source: Author citing general business knowledge

Overall Structure

The author is presenting a situation where people drew a conclusion, then challenging that conclusion by showing it could be wrong. The flow is: fact → people's reaction and reasoning → author's counterargument.

Main Conclusion: The depositors' reasoning that the bank is safe might be overoptimistic.

Boldface Segments

Boldface 1: several of a bank's top executives have been buying shares in their own bank
Boldface 2: corporate executives have been known to buy shares in their own company in a calculated attempt to dispel negative rumors about the company's health

Boldface Understanding

Boldface 1 Function: This is the key fact that caused depositors to feel relieved about their bank's safety
Boldface 1 Direction: Opposite direction - it supports the depositors' view, which the author thinks is potentially wrong

Boldface 2 Function: This provides evidence for why the depositors' reasoning might be flawed
Boldface 2 Direction: Same direction - it supports the author's conclusion that depositors might be overoptimistic

Structural Classification

Boldface 1 Structural Role: Evidence that others use to support a conclusion that the author questions
Boldface 1 Predicted Answer Patterns: "evidence used to support a position that the argument challenges" or "a fact that leads to a conclusion the author considers questionable"

Boldface 2 Structural Role: Supporting evidence for the author's main conclusion
Boldface 2 Predicted Answer Patterns: "evidence that supports the author's position" or "information that undermines the reasoning described earlier"

Answer Choices Explained

The first describes evidence that has been taken as supporting a conclusion; the second gives a reason for questioning that support.

"The first describes evidence that has been taken as supporting a conclusion" - ✓ CORRECT - The executives buying shares is exactly what the depositors used as evidence to conclude the bank is financially sound
"the second gives a reason for questioning that support" - ✓ CORRECT - The fact that executives sometimes buy shares to manipulate perception directly challenges whether their share purchases are reliable evidence of the bank's health

The first describes evidence that has been taken as supporting a conclusion; the second states a contrary conclusion that is the main conclusion of the argument.

"The first describes evidence that has been taken as supporting a conclusion" - ✓ CORRECT - Same as above, this correctly identifies the first boldface
"the second states a contrary conclusion that is the main conclusion of the argument" - ✗ WRONG - The second boldface doesn't state a conclusion at all; it provides evidence about executive behavior patterns to support the author's view that depositors might be overoptimistic

The first provides evidence in support of the main conclusion of the argument; the second states that conclusion.

"The first provides evidence in support of the main conclusion of the argument" - ✗ WRONG - The first boldface actually works against the author's main conclusion that depositors might be overoptimistic; it's what made depositors feel confident
"the second states that conclusion" - ✗ WRONG - The second boldface doesn't state any conclusion; it provides supporting evidence about executive motivations

The first describes the circumstance that the argument as a whole seeks to explain; the second gives the explanation that the argument seeks to establish.

"The first describes the circumstance that the argument as a whole seeks to explain" - ✗ WRONG - The argument isn't trying to explain why executives bought shares; it's trying to explain why depositors' reasoning based on those purchases might be flawed
"the second gives the explanation that the argument seeks to establish" - ✗ WRONG - The second boldface provides supporting evidence, not the main explanation the argument is establishing

The first describes the circumstance that the argument as a whole seeks to explain; the second provides evidence in support of the explanation that the argument seeks to establish.

"The first describes the circumstance that the argument as a whole seeks to explain" - ✗ WRONG - Same issue as Choice D; the argument isn't focused on explaining the executives' share purchases themselves
"the second provides evidence in support of the explanation that the argument seeks to establish" - ✓ CORRECT - This part correctly identifies that the second boldface supports the author's reasoning, but the first part is wrong

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