Q21 - Economist: Currently the interest rates that banks pa

[ohthatpatrick]

Question Type:
Sufficient Assumption

Stimulus Breakdown:
Conclusion: Total bank lending to companies is less now than five years ago.
Evidence: Total bank lending to small/medium companies is less now than five years ago. Banks won't lend to companies that aren't financially strong, and the interest rates banks can get from large, financially strong companies are lower than the bank's borrowing rates.

Answer Anticipation:
As soon as we see that when it comes to small/medium companies, we already know that total bank lending is less now than five years ago, then all our attention turns to large companies. As long as we're lending the same or less to large companies, then the conclusion will be valid. A large company could be financially strong or not financially strong. If it's not financially strong, we know banks won't currently lend to it. Zero lending to these companies, currently, has to be the same or less as what we lent to these companies five years ago. So the only remaining wiggle room is large, financially strong companies. The one detail we have about them is in the first sentence (banks collect unprofitable interest rates from these companies). So the correct answer will have to use that detail to convince us that we're lending the same or less to these companies as we were five years ago.

Correct Answer:
A

Answer Choice Analysis:
(A) YES, this works. Applying this rule to the first sentence, we know that banks will not lend money to large, financially strong companies. Since we already know they won't lend to not-financially strong companies and that total lending is down for small/medium companies, then it's definite that total bank lending to companies is down compared to that of five years ago.

(B) We don't need to hear anything else about small/medium companies.

(C) This mildly helps, but it doesn't prove anything. It's incredibly weak too, which means it's almost definitely not the correct answer on Sufficient Assumption. We still wouldn't know how much lending banks are currently doing with large, financially strong companies.

(D) This still doesn't tell us about whether / how much lending banks are doing to large, financially strong companies.

(E) We don't need to hear anything else about small/medium companies.

Takeaway/Pattern: Some people may be troubled by the arbitrary idea that small / medium / large is an exhaustive set of possibilities. "What about extra-large or super-small companies?" Sure. You're not wrong, but it's often prudent to play along with what you think the test writer was going for.

On Sufficient Assumption, you have a clear goal: prove the conclusion. Investigate the facts you have and ascertain where there is still wiggle room in the claim you're trying to prove. The correct answer has to eliminate all remaining wiggle room.

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