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Economist: To combat inflation without stifling economic growth, the central bank should implement a targeted reserve requirement increase solely for commercial banks with assets exceeding $50 billion. By restricting the lending capacity of only the largest institutions, the policy will curb the excessive money supply driving inflation while allowing smaller regional banks to continue providing the credit necessary for localized business expansion.

Statement: The economist's argument is effectively weakened by the fact that regional banks typically rely on syndicated loans—which are organized and primarily funded by the largest commercial banks—to finance localized business expansion.

Answer: Answer

Answer

True
The statement correctly weakens the argument because it exposes a critical flaw in the economist's plan. The economist relies on the premise that smaller banks will compensate for the restricted lending of larger banks. The statement invalidates this premise by demonstrating that smaller banks cannot provide this credit without the financial backing of the larger banks.

Step-by-Step Solution

1
Deconstruct the argument to identify the main conclusion and the premises supporting it.
Conclusion: Increasing reserve requirements only for large banks will combat inflation without stifling economic growth. Premises: The policy restricts large banks (curbing inflation) while permitting smaller regional banks to continue providing credit for business expansion (sustaining growth).
Understanding the precise relationship between the premises and the conclusion is necessary to identify vulnerabilities in the reasoning.
2
Identify the unstated assumption linking the premises to the conclusion.
The author assumes that the lending capacity of smaller regional banks is functionally independent of the lending capacity of the largest commercial banks.
For the plan to work as intended, restricting the large banks must not indirectly restrict the small banks' ability to provide credit.
3
Evaluate the impact of the provided statement on the argument's assumption.
The statement reveals that regional banks rely heavily on funding from large commercial banks (via syndicated loans) to finance localized business expansion. Therefore, if large banks are restricted, regional banks lose their funding source.
This directly attacks the unstated assumption by establishing a critical dependency, demonstrating that the plan will likely fail to achieve its goal of sustaining economic growth.

Key Concept

Identifying and attacking unstated assumptions regarding the causal or structural independence of variables within an argument.
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