Bank depositors in the United States are all financially

[Jazmet]

Source - GMAT PRep

Bank depositors in the United States are all financially protected against bank failure because the government insures all individuals' bank deposits. An economist argues that this insurance is partly responsible for the high rate of bank failures, since it removes from depositors any financial incentive to find out whether the bank that holds their money is secure against failure. If depositors were more selective, then banks would need to be secure in order to compete for depositors' money. Which of the following, if true, most seriously weakens the economist's argument?

A. Before the government started to insure depositors against bank failure, there was a lower rate of bank failure than there is now.
B. When the government did not insure deposits, frequent bank failures occurred as a result of depositors' fears of losing money in bank failures.
C. Surveys show that a significant proportion of depositors are aware that their deposits are insured by the government.
D. There is an upper limit on the amount of an individual's deposit that the government will insure, but very few individuals' deposits exceed this limit.
E. The security of a bank against failure depends on the percentage of its assets that are loaned out and also on
how much risk its loans involve.

OA - B, However I chose D.

Reason - There is an upper limit on the amount of an individual's deposit that the government will insure, but very few individuals' deposits exceed this limit. - which means - Less individuals know that the money is insured - which weakens the economist's argument.

Please help me with this.

[ramakrishna.doppalapoodi]

Conclusion of the argument is that 'banks would be more secure if the if the depositors were more selective'
so what if someone say 'banks' failure is not depends on depositors selection, but on loans'. This weakens the argument, given in E.

A-but what is situation after government started to insure?
Incorrect
B- same reasoning for A
C-this is strengthening the arg.
D-unknowingly did customers deposited the limited amount or knowingly did they limit deposited amount?
if they did knowingly , this also would have weakened the arg.

can you put OA!

[RonPurewal]

the idea behind the original argument is, basically,
Deposit Insurance --> Bank Failures

choice (b), in essence, shows that a high rate of bank failures would persist even in the absence of deposit insurance -- thus weakening the idea that the insurance is responsible for the high rate of failure.

i don't totally love this connection, because, rather than directly weakening the argument, it basically says, "well, something else would cause the same effect anyway if you took thing X away."
on the other hand, fortunately, the process of elimination is rather straightforward here on the other choices.

* choice (a) is strong supporting evidence for the argument, not evidence against it.

* choice (c) really doesn't do much one way or the other -- but the opposite of this statement would weaken the argument. i.e., if depositors were unaware of the insurance, then the economist's argument would fall apart. so, if the opposite of this choice does what we want, then this choice is not what we want.

* choice (d) says that the government will refuse to insure above a certain amount (say, i don't know, $1 million). but then it says that very few individuals' deposits are above this level anyway -- so this choice is basically irrelevant.
remember, the economist's argument is about the behavior of depositors in general; therefore, any statement that's limited to a small number of people is not going to have an appreciable effect on such general trends.

* choice (e) is irrelevant, since the argument is not concerned with things about the banks themselves that make the banks more susceptible to failure; rather, it is concerned with the behavior of the banks' depositors.

There is an upper limit on the amount of an individual's deposit that the government will insure, but very few individuals' deposits exceed this limit. - which means - Less individuals know that the money is insured - which weakens the economist's argument.

hmm -- i don't know how you are getting from the blue thing to the red thing, but that's definitely not what the blue thing means. (the only statement here that's related to the red thing is choice (c), but that choice basically states the opposite of the red thing.)
try reading the blue thing again, and/or reading my explanation of that answer choice above.

[Jazmet]

Thank you for the explanation Ron!

My Bad - I took 'upper limit' as 'lower limit' and ended up with a foot in my mouth. I thought few people are insured rather than few people are not insured.

Thank you once again!


@ramakrishna.doppalapoodi - The OA is right there buddy - Just highlight the text.

[RonPurewal]

Thank you for the explanation Ron!

My Bad - I took 'upper limit' as 'lower limit' and ended up with a foot in my mouth. I thought few people are insured rather than few people are not insured.

Thank you once again!

ok. watch out!

by the way, you also included a reference to whether the depositors know that their deposits are insured. (not sure whether you literally meant that -- but that's what the words say.) that is also something that's not in the actual answer choice.

the upside of CR is that you don't need any outside knowledge to solve the problems ... but the downside is that you have to read the statements very, very carefully.

@ramakrishna.doppalapoodi - The OA is right there buddy - Just highlight the text.

this is not common practice on the MGMAT forum; i don't think most of our users will figure this out.
so, if you do this, please include a comment (in visible text) such as "Highlight to see answer".

[Jazmet]

Sure! Thank you.

[RonPurewal]

no problem

[Carina0612]

[redacted]

[RonPurewal]

we can't host or discuss OG problems here, per express request from GMAC.

we've left up the threads that pre-dated that request (roughly 2008 and older), but, only those.

please read the forum rules before posting. thanks. (also—if the entire folder is locked, that's probably for a reason!)