READING COMPREHENSION SET 1
Time: 25 minutes—18 Questions
Directions: Each passage in this section is followed by several questions. After reading the passage, choose the best response to each question and mark it on your answer sheet. Your replies are to be based on what is actually stated or implied in the passage, and not on your own knowledge. You may refer to the passage while answering the questions.
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P R A C T I C E S E T S A N D E X P L A N AT I O N S
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 (5) 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 (10) 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 (15) expor ts 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 star tling. (20) 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 (25) 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) (B) (C) (D) (E) proposing a new type of economic analysis criticizing an overly formal economic model advocating the use of