Eighteenth-century economist Adam Smith introduced the invisible hand

Question

Eighteenth-century economist Adam Smith introduced the “invisible hand” as a metaphor for the societal results of individuals’ self-interested actions. Subsequent theorists expanded Smith’s idea to form the “general equilibrium theory,” in which invisible market forces guided the interaction of supply and demand toward a natural balance as individuals act in their own interest and firms pursue the goal of maximizing profit.

Despite the ubiquity of this model in both popular and scholarly thinking, there is no evidence for its truth. Although academic economists have demonstrated that an optimal equilibrium of supply and demand exists, the guiding influence of Smith’s invisible hand in moving markets toward such a balance has not been shown. The dubious belief that markets actively move toward an equilibrium has been used by proponents of deregulation, who insist that removing government interventions promotes economic strength, and the presumption of its accuracy has prevented some leaders and economists from identifying critical signs of impending crises. The general equilibrium theory presents an optimistic view of self-correction that has not been borne out by actual economic conditions—a defect that calls into question Smith’s antecedent hypotheses.    1 
 1. The author of the passage implies which of the following regarding the originators of the general equilibrium theory?

A. There is ample evidence to support the basis of the theory.
B. They developed the theory sometime in the eighteenth century.
C. Their theories were immediately popular among the general public.
D. They were aware of Smith’s beliefs about the relationship between individual actions and the economy.
E. Some of them worked closely with Smith during the time in which he formulated his theory.

2 
 2. The author of the passage is primarily concerned with

A. exploring the argument for economic regulation
B. questioning the foundation of the general equilibrium theory
C. defending Smith’s beliefs with supporting evidence
D. asserting that market forces naturally maintain balance
E. comparing several economic theories

3 
 3. It can be inferred from the passage that defenders of the general equilibrium theory would most likely regard economic regulations as

A. imperative
B. catastrophic
C. salutary
D. insufficient
E. unnecessary

RC Butler 2022  -  Practice Two RC Passages Everyday.   
Passage # 112 Date: 17-Mar-2022
 This question is a part of RC Butler 2022 .  Click here for Details

Ghostrider3147 · Answer

Sajjad1994  pls explain Q3??

Posted from my mobile device

Sajjad1994 · Answer

Official Explanation

3. It can be inferred from the passage that defenders of the general equilibrium theory would most likely regard economic regulations as

Difficulty Level:   550

Explanation

The subject of the question is how  defenders of the general equilibrium theory…regard economic regulations  and the task of the question is referenced by the word  inferred . This is an inference question. Determine what the passage says about the subject.  The passage states that the belief that markets actively move toward an equilibrium has been used by proponents of deregulation, who insist that removing government interventions promotes economic strength.  So, defenders of the general equilibrium theory most likely regard regulation as ineffective. Evaluate the answer choices individually, looking for one that reflects this idea.

Choice (A)  is a reversal of the information in the passage and the opposite of  “ineffective,”  so eliminate (A).

Choice (B)  is an example of extreme language, as the passage does not support the idea that defenders see regulation as catastrophic. Eliminate (B).

Choice (C)  is a reversal of the information in the passage as salutary means producing a good effect. Eliminate (C).

Choice (D) , insufficient, is a reversal of the information in the passage. Eliminate (D).

Choice (E)  is a good match for  “ineffective.”

The correct answer is (E).

VIGHNESHKAMATH · Answer

The author mentions in the passage that the proponents of deregulation were supporting the equilibrium theory thus it is clear that they didn't consider economic regulation as a necessary option. ''Catastrophic'' is an extraordinarily strong word, there is no indication in the passage to employ such a strong word, passage only states that proponents of deregulation ''insist'' on removing the regulations. The word ''ínsist'' doesn't permit us to equate it with ''catastrophic''. 
''Insufficient'' is again nowhere indicated in the passage, as it would mean regulation is acceptable, but it requires something more to it. However, the proponents of deregulation clearly insisted on removing the regulations altogether. Thus, the only safe bet is ''unnecessary''. Other two options such as salutary is completely opposite to the passage's line of thought.

Thank You
Vighnesh

VerbalBot · Answer

Automated notice from GMAT Club VerbalBot: 

A member just gave Kudos to this thread, showing it’s still useful. I’ve bumped it to the top so more people can benefit. Feel free to add your own questions or solutions.

 This post was generated automatically.

Eighteenth-century economist Adam Smith introduced the invisible hand

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Reading Comprehension (RC) Questions

Eighteenth-century economist Adam Smith introduced the invisible hand

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards