GMAT Question of the Day - Daily to your Mailbox; hard ones only

 It is currently 08 Dec 2019, 03:47

### GMAT Club Daily Prep

#### Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

# The relevance of formal economic models to real-world policy has been

Author Message
TAGS:

### Hide Tags

Senior RC Moderator
Joined: 02 Nov 2016
Posts: 4573
GPA: 3.39
The relevance of formal economic models to real-world policy has been  [#permalink]

### Show Tags

23 Apr 2019, 08:30
1
Question 1
00:00

based on 117 sessions

46% (02:26) correct 54% (02:34) wrong

### HideShow timer Statistics

Question 2
00:00

based on 107 sessions

56% (00:55) correct 44% (00:55) wrong

### HideShow timer Statistics

Question 3
00:00

based on 107 sessions

60% (01:10) correct 40% (01:08) wrong

### HideShow timer Statistics

Question 4
00:00

based on 101 sessions

33% (01:36) correct 67% (01:30) wrong

### HideShow timer Statistics

New Project RC Butler 2019 - Practice 2 RC Passages Everyday
Passage # 163, Date : 23-APR-2019
This post is a part of New Project RC Butler 2019. Click here for Details

The relevance of formal economic models to real-world policy has been a topic of some dispute. The economists R. D. Norton and S. Y. Rhee achieved some success in applying such a model retrospectively to the Korean economy over a fourteen-year period; the model’s figures for output, prices, and other variables closely matched real statistics. The model’s value in policy terms, however, proved less clearcut. Norton and Rhee performed simulations in which, keeping long-term factors constant, they tried to pinpoint the effect of short-term policy changes. Their model indicated that rising prices for imported oil would increase inflation; reducing exports by five percent would lower Gross Domestic Product and increase inflation; and slowing the growth of the money supply would result in slightly higher inflation.

These findings are somewhat startling. Many economists have argued that reducing exports will lessen, not increase, inflation. And while most view escalating oil costs as inflationary, few would think the same of slower monetary growth. The Norton-Rhee model can perhaps be viewed as indicating the pitfalls of a formalist approach that stresses statistical “goodness of fit” at the expense of genuine policy relevance.
1. The author is primarily concerned with

(A) proposing a new type of economic analysis
(B) criticizing an overly formal economic model
(C) advocating the use of statistical models in determining economic policy
(D) suggesting an explanation for Korean inflation
(E) determining the accuracy of Norton and Rhee’s analysis

2. The author mentions “a fourteen-year period” (Highlighted) in order to

(A) indicate how far into the future Norton and Rhee’s model can make accurate predictions
(B) acknowledge the accuracy of Norton and Rhee’s model in accounting for past events
(C) explain the effect of reducing exports on inflation
(D) demonstrate the startling nature of Norton and Rhee’s findings
(E) expose the flaws in Norton and Rhee’s model

3. The most significant criticism leveled against Norton and Rhee’s model is that it

(A) excludes key statistical variables
(B) is too abstract to be useful in policy making
(C) fails to adjust for Korea’s high rate of inflation
(D) underestimates the importance of economic growth
(E) fails to consider the effect of short-term variations in the economy

4. It can be inferred that the most surprising finding of the Norton-Rhee study is that

(A) reducing exports would reduce inflation
(B) high oil prices worsen inflation
(C) an increase in exports can slow the rate of growth
(D) slower monetary expansion would worsen inflation
(E) long-term factors do not affect economic growth

_________________
Intern
Joined: 02 Feb 2018
Posts: 33
Re: The relevance of formal economic models to real-world policy has been  [#permalink]

### Show Tags

24 Apr 2019, 08:09
Hi,

Can someone please explain the reason behind question 1 and 3?

Verbal Forum Moderator
Status: Greatness begins beyond your comfort zone
Joined: 08 Dec 2013
Posts: 2435
Location: India
Concentration: General Management, Strategy
Schools: Kelley '20, ISB '19
GPA: 3.2
WE: Information Technology (Consulting)
Re: The relevance of formal economic models to real-world policy has been  [#permalink]

### Show Tags

25 Apr 2019, 10:08
All correct in 7 mins 20 seconds, including 3 mins 20 seconds to read

Para 1- relevance of formal economic models to real-world policy, Norton-Rhee model
Para 2- startling findings, pitfalls of a formalist approach

1. The author is primarily concerned with
(A) proposing a new type of economic analysis- incorrect, the author does not make any proposals
(B) criticizing an overly formal economic model- Correct
(C) advocating the use of statistical models in determining economic policy- incorrect, the author does not advocate the use of statistical models
(D) suggesting an explanation for Korean inflation- too narrow a scope
(E) determining the accuracy of Norton and Rhee’s analysis- incorrect

2. The author mentions “a fourteen-year period” (Highlighted) in order to
(A) indicate how far into the future Norton and Rhee’s model can make accurate predictions- incorrect, the model was used retrospectively
(B) acknowledge the accuracy of Norton and Rhee’s model in accounting for past events- Correct
achieved some success in applying such a model retrospectively to the Korean economy over a fourteen-year period; the model’s figures for output, prices, and other variables closely matched real statistics.
(C) explain the effect of reducing exports on inflation- irrelevant
(D) demonstrate the startling nature of Norton and Rhee’s findings- incorrect
(E) expose the flaws in Norton and Rhee’s model- incorrect

3. The most significant criticism leveled against Norton and Rhee’s model is that it
(B) is too abstract to be useful in policy making

The model’s value in policy terms, however, proved less clearcut.

4. It can be inferred that the most surprising finding of the Norton-Rhee study is that
(A) reducing exports would reduce inflation- incorrect, the model claims that reducing exports by five percent would lower Gross Domestic Product and increase inflation
(B) high oil prices worsen inflation- incorrect- this is not startling
(C) an increase in exports can slow the rate of growth- incorrect
(D) slower monetary expansion would worsen inflation- correct, few would think the same of slower monetary growth.
(E) long-term factors do not affect economic growth- incorrect

These findings are somewhat startling. Many economists have argued that reducing exports will lessen, not increase, inflation. And while most view escalating oil costs as inflationary, few would think the same of slower monetary growth.

Priyanka2018 wrote:
Hi,

Can someone please explain the reason behind question 1 and 3?

Hi Priyanka2018,
Hope this helps!
_________________
When everything seems to be going against you, remember that the airplane takes off against the wind, not with it. - Henry Ford
The Moment You Think About Giving Up, Think Of The Reason Why You Held On So Long
Intern
Joined: 20 Oct 2018
Posts: 36
Re: The relevance of formal economic models to real-world policy has been  [#permalink]

### Show Tags

15 Nov 2019, 01:07
Skywalker18 wrote:
All correct in 7 mins 20 seconds, including 3 mins 20 seconds to read

Para 1- relevance of formal economic models to real-world policy, Norton-Rhee model
Para 2- startling findings, pitfalls of a formalist approach

1. The author is primarily concerned with
(A) proposing a new type of economic analysis- incorrect, the author does not make any proposals
(B) criticizing an overly formal economic model- Correct
(C) advocating the use of statistical models in determining economic policy- incorrect, the author does not advocate the use of statistical models
(D) suggesting an explanation for Korean inflation- too narrow a scope
(E) determining the accuracy of Norton and Rhee’s analysis- incorrect

2. The author mentions “a fourteen-year period” (Highlighted) in order to
(A) indicate how far into the future Norton and Rhee’s model can make accurate predictions- incorrect, the model was used retrospectively
(B) acknowledge the accuracy of Norton and Rhee’s model in accounting for past events- Correct
achieved some success in applying such a model retrospectively to the Korean economy over a fourteen-year period; the model’s figures for output, prices, and other variables closely matched real statistics.
(C) explain the effect of reducing exports on inflation- irrelevant
(D) demonstrate the startling nature of Norton and Rhee’s findings- incorrect
(E) expose the flaws in Norton and Rhee’s model- incorrect

3. The most significant criticism leveled against Norton and Rhee’s model is that it
(B) is too abstract to be useful in policy making

The model’s value in policy terms, however, proved less clearcut.

4. It can be inferred that the most surprising finding of the Norton-Rhee study is that
(A) reducing exports would reduce inflation- incorrect, the model claims that reducing exports by five percent would lower Gross Domestic Product and increase inflation
(B) high oil prices worsen inflation- incorrect- this is not startling
(C) an increase in exports can slow the rate of growth- incorrect
(D) slower monetary expansion would worsen inflation- correct, few would think the same of slower monetary growth.
(E) long-term factors do not affect economic growth- incorrect

These findings are somewhat startling. Many economists have argued that reducing exports will lessen, not increase, inflation. And while most view escalating oil costs as inflationary, few would think the same of slower monetary growth.

Priyanka2018 wrote:
Hi,

Can someone please explain the reason behind question 1 and 3?

Hi Priyanka2018,
Hope this helps!

Can you plz explain Q4, I am not able to understand how the reference text (few would think the same of slower monetary growth) can be considered the most surprising finding?
Re: The relevance of formal economic models to real-world policy has been   [#permalink] 15 Nov 2019, 01:07
Display posts from previous: Sort by