LSAT 151 | Section 2 | Logical Reasoning: Q21

LR Question 21 Explanation

QUESTION TEXT: Economist: Currently the interest rates that banks pay …

QUESTION TYPE: Sufficient Assumption

CONCLUSION: The total $ banks loan to companies is less now than it was 5 years ago.

REASONING: Banks aren’t lending to financially weak companies, and lending to small/medium companies is already down.

ANALYSIS: Right now, we know:

1. Lending to weak companies = basically none
2. Lending to small/medium companies = down

But the conclusion is about all company lending being down.

So what’s missing? The huge category we haven’t accounted for: large financially strong companies. If banks are lending way more to big strong companies now, then total lending could actually be up. So the assumption has to shut that possibility down.

Ask yourself: What would prevent banks from making lots of loans to large financially strong companies?

Well, the stimulus tells us banks are borrowing money at higher rates than they’d earn lending to those companies. But that only matters if banks wouldn’t knowingly make loans that lose them money. That’s the missing assumption.

Once you add “banks don’t lend at a loss”, then boom. You get:

• no lending to weak companies
• reduced lending to small/medium companies
• no profitable lending to big strong companies either

So now total lending has to be down.

___________

1. CORRECT. See above. The argument tells us lending to big strong companies would lose money. But we need the assumption that banks wouldn’t actually do that. Once we add that, the conclusion works.
2. Doesn’t matter whether smaller companies used to be stronger. The argument is about current lending totals, not why company strength changed.
3. Tempting because it mentions five years ago, but unnecessary. Even if banks also refused weak companies back then, the conclusion could still hold for other reasons.
4. This compares current borrowing rates to past rates, but the argument only cares about the current mismatch between borrowing costs and lending returns.
5. This tells us smaller companies pay higher rates, which might suggest banks would want to lend to them. But that doesn’t fix the actual logical gap about total lending.