The correct answer is A.

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PrepTest 30, Section 2, Question 15

Explanation:

This is a classic LSAT example of a causal argument, and a question categorized as "difficult" by the test-makers. As with all arguments, we'll teach you to break it down into two component parts: conclusion and evidence. Next, we'll work to ascertain the assumption–a necessary skill on virtually all argument-based Logical Reasoning questions.

The conclusion here is that banks will lend more money if regulatory standards are relaxed.

The evidence for this is that before the downturn, the standards were tightened. In other words, according to this author, the tightening of the standards is what caused the banks to loan less money.

One of the assumptions inherent in a causal argument–in any causal argument, a frequently used argument structure on the LSAT–is that no other factor caused the result in question, in this case, loaning less money. And that's the precise assumption that correct answer (A) identifies–it rules out an alternative explanation, namely that the downturn itself, not the regulations, caused the banks to have less money to lend.

Let's look at the wrong answer choices here, all exhibiting classic LSAT incorrect answer character traits.

(B) The author is arguing that the standards caused banks to loan less money. Therefore, if standards are loosened, banks will loan more money. The downturn doesn't come into play, and therefore the author doesn't have to assume anything about whether the standards caused the downturn.

(C) is irrelevant to the argument. There is no need to assume anything about whether the reason for tightening the standards was arbitrary, or rational. The wisdom of the decision is outside the scope.

(D) and (E) are too extreme. The author doesn't have to assume that much for the argument to hold true. The author is making an argument about what happened in this particular case. Answer choices which read "no economic downturn ...", or "no relaxation of..." are really saying the author is making an assumption about every downturn, or every relaxation of standards. Clearly, the author doesn't need to do that to reach a conclusion in this single instance, so these answers are incorrect. Extreme answers are almost always incorrect on assumption questions.

Inference questions—particularly those that involve elements of formal logic—are among the most complicated, yet most frequently tested, question types on the Logical Reasoning section of the LSAT. But not to worry. At Kaplan, we'll teach you how to deconstruct all argument structures in Logical Reasoning and the rest of the LSAT, and delve deep into answer choice construction, so you'll know exactly why right answer are right and wrong answers are wrong. You'll leave confident in your approach to LR on Test Day.