Logical Reasoning

PT151 · S2 · Q21 Economist: Currently the interest rates

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Economist: Currently the interest rates that banks pay to borrow are higher than the interest rates that they can receive for loans to large, financially strong companies.

Conclusion

Total bank lending to companies is less than it was five years ago.

Evidence

Total bank lending to small/medium companies is less than it was five years ago. When it comes to large companies, there are two categories: the financially strong and not-financially strong. For the financially strong large companies, the interest rates banks pay to procure money is higher than the interest rate they can charge these large companies to lend them money. For the not-financially strong large companies, banks will not currently lend to them.

Evaluation

There's a lot going on in this paragraph, but the most salient supporting claim is that small/medium companies are getting less lending than five years ago. If lending to small/medium companies is down, does that mean lending to companies (overall) is down?

It depends on how much lending large companies are getting (they're the only missing piece, if all companies are being lumped together as small, medium, or large).

If banks are also lending less (or the same) to large companies, then total bank lending to companies is definitely lower.

Does the author tell us how much lending large companies are getting now, compared to five years ago? Nope. So that's the big missing piece of info. But we do have some information about large companies.

The large companies that aren't financially strong are getting zero lending. So we don't have to worry about them. $0 of lending is definitely less than or equal to what lending they were getting five years ago.

So the only unknown segment of the "All Companies" pie is large, financially strong companies. If we can establish that they, too, are getting less or equal lending now compared to five years ago, then we will have proven the conclusion.

Goal

Look for an answer to take the one thing we know about large, financially strong companies (the money that banks can charge these companies for lending to them is less than what the banks have to pay to get the money in the first place) and to use fact to convince us that bank lending to financially strong companies is currently less than or equal to what it was five years ago.

21.

The economist's conclusion follows logically if which one of the following is assumed?

  1. Correct

    Banks will not lend money

    Why this is right

    In the case of large, financially strong companies, banks would be lending to them at an interest rate that is lower than the interest rates that the bank pays to borrow its money in the first place. According to the answer, banks will not lend in such cases. So this firmly establishes that banks are currently not lending to large, financially strong companies. We already knew that no lending is happening to large, not-financially strong companies. And we knew that less lending is happening to small / medium sized companies. So we've proven that there's less lending overall.

    Skill tested: Sufficient Assumption · how this choice captures the argument's function is the move to repeat next time.

    38% picked this

  2. Most small and medium-sized companies

    Unrelated to Goal

    We already know that total lending is down for small and medium-sized companies. We don't need to worry about the details of how it looks with financially strong ones vs. not-financially strong ones, because the argument already provided the information we need, about the overall lending to small and medium-sized companies.

    23% picked this

  3. Five years ago, some banks

    Unrelated to Goal Weak

    We need to know about the financially strong large companies. This is about not-financially strong companies. This maybe strengthens a bit, by making it seem like there may have been more lending five years ago to non-financially strong companies, but we can't seal the deal until we know about those financially strong large companies. (It's almost unheard of for an answer as weak as "some" to be correct on Sufficient Assumption. You usually need black-and-white, no exceptions type language to 100% guarantee a conclusion.)

    18% picked this

  4. The interest rates that banks

    Unrelated to Goal

    This is giving us some backstory on a premise. But we need to hear how much lending is / isn't currently being given to large, financially strong companies.

    11% picked this

  5. The interest rates that small

    Unrelated to Goal

    This probably seems appealing because it feels like it could be inferred. But we're not being asked what can be derived from this paragraph. We're looking for the missing piece that could guarantee the conclusion: how much lending banks are currently giving to large, financially strong companies.

    10% picked this

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