GMAT Critical Reasoning
To improve the long-term savings rate of the citizens of Levaska, the country's legislature decided to implement a plan that allows investors to save up to $1,000 per year in special accounts without paying taxes on the interest earned unless withdrawals are made before the investor reaches age sixty-five. Withdrawals from these accounts prior to age sixty-five would result in the investor's having to pay taxes on all the accumulated interest at the time of withdrawal.
Which of the following, if true, most strongly supports the prediction that the legislature's plan will have its intended effect?
- A The money saved in the tax-free savings accounts will be deposited primarily in those banks and financial institutions that supported the legislation instituting the plan.
- B The majority of people choosing to take advantage of the tax-free savings accounts will withdraw their money prior to age sixty-five.
- C A significant number of the citizens of Levaska will invest in the tax-free savings accounts well before they reach the age of sixty-five.
- D During the ten years prior to implementation of the plan, Levaskans deposited an increasingly smaller percentage of their annual income in long-term savings accounts.
- E People who are not citizens of Levaska are not eligible to invest in the tax-free savings accounts, even if their income is taxable in Levaska.
Correct Answer: C