Logical reasoning PrepTest 151 · Section 2 · Question 21

Correct. Argument or Facts:
Argument

Valid or Flawed:
Flawed

Question Type:
Strengthen with Sufficient Premise (Sufficient Assumption)

Stimulus Summary:
Conclusion: Total bank lending is down from 5 years ago.
Bank borrowing interest rates > Bank lending interest rates to large, financially strong companies. Banks won't lend to not-financially-strong companies. Total lending to small- and medium-sized companies is down.

Answer Anticipation:
There's a lot going on in the stimulus, but let's start with the conclusion. Here, the author states that total lending is down. Then, lending to a few specific groups is mentioned—small and medium-sized companies are being lent to less, and not-financially-strong companies aren't being lent to at all. At this point, to reach the conclusion, the author would need to show that lending to financially strong large companies isn't balancing out this downturn to reach the conclusion.

It doesn't do that. Instead, it talks about the relative interest rates of their borrowing vs. lending to these institutions. In order to bridge the gap and answer this question, we need to find an answer that guarantees the lower interest rates that could be charged to these institutions is enough to guarantee the banks will not make enough loans to balance out the downturn in other areas.

Answer Explanation:
With some anticipation, this answer should jump off the page. If banks won't lend money at a lower rate than they can borrow it, the first sentence of the stimulus guarantees banks won't lend money to large, financially strong companies. With the rest of the premises stating the banks are refusing to loan out money, or doing so less, the conclusion follows logically.

Key Takeaway:
When an argument concludes something about an entire group (here, all lending), and the premises start breaking that group down into smaller subsets (here, small/medium/large, and financially strong/not strong), check to see which subset is missing. Here, nothing was established about the lending rate to large, financially strong companies. That missing piece was key to finding the correct answer.

Incorrect. Since the stimulus already establishes that lending to these companies is lower than it was five years ago, their financial strength is irrelevant in reaching the conclusion.

Incorrect. While this answer might suggest that lending was higher five years ago (since some banks were lending to not-financially-strong companies, and now none are), it doesn't establish that the banks aren't lending money to the large, financially strong institutions, which is needed to reach the conclusion. With just this answer, it's possible banks are loaning money out at a loss to a lot of these large companies.

Incorrect. This comparison doesn't establish how the higher rates impacted lending to these large, financially strong companies, which is what is needed to reach the conclusion.

Incorrect. The argument isn't concluding anything about profits from lending money out, which this answer appears to be getting at. It's about total number of loans, not interest rates paid.