Question

A recession is not caused by any economic force other than nation wide loss of confidence. If the economy is perceived as being unstable, banks are conservative in lending money, investors take fewer risks and hence economic growth is slowed. Which of the following, if true, would most strengthen the argument above.

• A. A recession is getting effected by the response of the Federal Reserve's setting of interest rates.
• B. A recession can be brought on by the failure of a major bank that had been loaning money.
• C. Slowed economic growth is not the only result of a recession.
• D. When investors begin taking greater risks it is enough to stimulate economic growth.
• E. It is a fallacy to assume that economic growth is necessary for economic stability.

Hint:

A good way to strengthen a causal argument (A causes B) is to show that the reverse is also true (Not A leads to Not B) or that the mechanism works in the opposite direction (More of A leads to More of B, and Less of A leads to Less of B).

Answer 1

The Correct Option is D

Step 1: Understanding the Concept:
This is a Critical Reasoning question asking to strengthen an argument. The argument presents a causal chain: loss of confidence \(\rightarrow\) reduced lending/investment \(\rightarrow\) slowed growth (recession). We need to find a statement that reinforces this causal link.
Step 2: Detailed Explanation:
The Argument's Core Claim: The ONLY cause of recession is a nationwide loss of confidence.
The Mechanism: Loss of confidence \(\rightarrow\) banks lend less, investors risk less \(\rightarrow\) growth slows.
The argument asserts that this mechanism is the sole driver. To strengthen it, we can show that the mechanism is very powerful or that reversing one of the steps has the opposite effect.


(A) This introduces another cause (Federal Reserve action), which directly \textit{weakens} the argument's claim that loss of confidence is the \textit{only} cause.
(B) This introduces another cause (bank failure), which also \textit{weakens} the "only cause" argument.
(C) This talks about the results of a recession, not its cause. It is irrelevant.
(D) This is the correct answer. The argument states that taking fewer risks slows growth. This option shows the reverse is true: taking greater risks stimulates growth. By showing that the relationship works in both directions, it strongly supports the idea that the level of risk-taking by investors (which is driven by confidence) is a primary driver of economic growth.
(E) This is a philosophical statement about economic stability and growth that doesn't directly support the specific causal claim about confidence and recession.
Step 3: Final Answer:
The argument's central mechanism is that investor risk-taking (driven by confidence) controls economic growth. Option (D) reinforces this mechanism by showing that the inverse relationship also holds true (more risk \(\rightarrow\) more growth), thus strengthening the original causal claim.