PrepTest 111, Section 3, Question 15
During the recent economic downturn, banks contributed to(30 more words not shown)
The argument assumes(1 more words not shown)
- Athe downturn did(25 more words not shown)
- Bthe imposition of(12 more words not shown)
- Cthe reason for(7 more words not shown)
- Dno economic downturn(21 more words not shown)
- Eno relaxation of(13 more words not shown)
Reading the argument
What if the banks aren't holding back because of the regulations?
They lent less during the downturn, and that contributed to the decline. But banks might be worried that borrowers won't repay them. A collapsing economy could make lending look risky even without stricter rules. Changing interest rates or some other disruption could also matter.
The argument gives us the timing: lending standards were tightened before the downturn. Then it jumps to the prediction that relaxing them will make banks lend more. That only works if those rules are a real obstacle whose removal would free up lending. If some other constraint still prevents the loans, changing the regulations won't be enough.
What we’re looking for
For the necessary assumption, I'd look for a defense against that alternative explanation. We don't need to claim regulations are the only thing that ever affects lending. But the author does need the proposed change to be capable of producing the promised increase, rather than leaving another blocking problem in place.
Working the answers
- ACorrect
This identifies a different constraint: the money available for banks to lend. Suppose the downturn substantially depleted deposits, leaving the banks without the funds they would otherwise lend. Relaxing a rule doesn't put that money back. The banks could be permitted to make more loans but still lack the money to do so.
The argument assumes that this loss of lending funds hasn't intervened. A rules out that obstacle, defending the prediction that loosening the standards will increase lending. It doesn't establish that no other factor matters; it addresses one particular alternative to the author's regulatory explanation.
- B
The argument doesn't need to deny that tighter rules helped cause the downturn. That could fit the story that stricter rules reduced lending and reduced lending hurt the economy. The immediate question is whether relaxing the standards will increase lending, not whether the standards played no role in the broader economic decline.
- C
An arbitrary rule could still constrain lending, and a carefully justified rule could do so too. The regulator's reason for adopting the standards doesn't determine what effect removing them would have. The prediction doesn't depend on the tightening having a nonarbitrary motive.
- D
This makes a claim about every economic downturn. Our argument concerns this particular one and explicitly says banks contributed to it by lending less. It has no need for a universal claim that downturns are never accompanied by significant lending declines. D doesn't defend the proposed effect of relaxing these standards.
- E
The conclusion doesn't require a judgment that no relaxation could compensate for the downturn's effects. It predicts more lending, which could be a partial improvement without offsetting every consequence of the decline. E's sweeping denial of compensation isn't a premise the author needs.
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