Half of Metroburg's Operating Budget Comes from a Payroll Tax of 2 Percent on Salaries Paid to People Who Work in the City.

Question: Half of Metroburg's operating budget comes from a payroll tax of 2 percent on salaries paid to people who work in the city. Recently a financial services company, one of Metroburg's largest private-sector employers, announced that it will be relocating just outside the city. All the company's employees, amounting to 1 percent of all people now employed in Metroburg, will be employed at the new location.

From the information given, which of the following can most properly be concluded?

1. Unless other employers add a substantial number of jobs in Metroburg, the company's relocation is likely to result in a 1 percent reduction in the revenue for the city's operating budget.
2. Although the company's relocation will have a negative effect on the city's tax revenue, the company's departure will not lead to any increase in the unemployment rate among city residents.
3. One of the benefits that the company will realize from its relocation is a reduction in the taxes paid by itself and its employees.
4. Revenue from the payroll tax will decline by 1 percent if there is no increase in jobs within the city to compensate, fully or partially, for the company's departure.
5. The company's relocation will tend to increase the proportion of jobs in Metroburg that are in the public sector unless it results in a contraction of the public-sector payroll.

Half of Metroburgs Operating Budget Comes from a Payroll Tax of 2 Percent on Salaries Paid to People Who Work in the City -is a GMAT Critical question. This particular GMAT Critical Reasoning topic has been taken from the book ‘GMAT Critical reasoning problems: master over 350 problems of 700-800 level’. This particular topic is the Assumption and conclusion type of question. For this type, the candidates need to provide an assumption supporting the conclusion in the passage. GMAT critical reasoning tests the logical and analytical skills of the candidates. Critical reasoning in GMAT requires candidates to find the strengths and weaknesses of the argument, or find the logical flaw in the argument.  The GMAT CR section contains 10 -13 GMAT critical reasoning questions out of 36 GMAT verbal questions.

Answer: E
Explanation:
We must find the most proper conclusion in this GMAT verbal critical reasoning question. Let us check each option one by one. 

Option A: Incorrect
- This option does not give us any idea about revenue. Hence, we can consider this incorrect. To explain more, the salaries that the sector pays to its employees could be well above the average of Metroburgs salary or below as well. Hence, we will not be able to conclude whether A is definitely correct. Hence, it is incorrect.

Option B: Incorrect
- There could be an increase or decrease in the unemployment rate since we don't know if the private firm employees earn higher or lower than the average salary (Incorrect)

Option C: Incorrect
- This is Out of Scope. We do not know if the private firm has relocated to save taxes paid. Hence, we will consider this Incorrect, since we cannot go on assumption.

Option D: Incorrect
- The reason for this being incorrect is the same as A.

Option E: Correct
- Private company comprising of 1% of total strength has been relocated to another city outside. We can see that Metroburg has public and private employees. Since we know that the private-sector employees have relocated, the number of employees within Metroburg has automatically reduced. This thus helped in increasing the number of public-sector employees. This wouldn't happen if the relocation caused a reduction of a large number of jobs in the public sector. However, it is not if this relocation leads to a decrease in the salaries of public sector employees. 
Hence, E is the correct answer. 

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