Eighteenth-Century Economist Adam Smith Introduced The Invisible Hand Gmat Reading Comprehension

Reading Passage 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.

“Eighteenth-century economist Adam Smith introduced the invisible hand” is a GMAT reading comprehension passage with sets of answers. The candidates need to have a precise concept of English GMAT reading comprehension. The passage is followed by three comprehension questions in this area of GMAT Reading Comprehension. GMAT Reading Comprehension questions are composed to measure the skills of the candidate in comprehending ideas or basic concepts. Candidates can prepare them in an active way by practising GMAT Reading Comprehension Practice Questions.

Solutions and Explanation

1. The author of the passage implies which of the following regarding the originators of the general equilibrium theory?

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

2. The author of the passage is primarily concerned with

1. exploring the argument for economic regulation
2. questioning the foundation of the general equilibrium theory
3. defending Smith’s beliefs with supporting evidence
4. asserting that market forces naturally maintain balance
5. comparing several economic theories

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

1. imperative
2. catastrophic
3. salutary
4. insufficient
5. unnecessary

Suggested GMAT Reading Comprehension Samples

• To remain financially sound, health insurance companies must charge GMAT Reading Comprehension
• Dark matter and dark energy have both been postulated by astrophysicists GMAT Reading Comprehension
• The existence of mammals on the earth can be traced back to at least the Triassic time GMAT Reading Comprehension
• Contamination is the Unintended Presence of Harmful Substances GMAT Reading Comprehension.
• The 1956 Short Film The Red Balloon Ends with the Young Protagonist Sailing Over Paris GMAT Reading Comprehension.
• The Diversity of Species in Bacterial Communities is Often Studied by Phenotypic Characterization GMAT Reading Comprehension.
• Despite views that globalization has reached its peak GMAT Reading Comprehension
• Five years after the crash in technology shares GMAT Reading Comprehension
• In the seventeenth-century Florentine textile industry women were employed GMAT Reading Comprehension
• The nub of the restorationist critique of environmental preservationism GMAT Reading Comprehension
• Many of the most popular diets today, including the so-called “Paleo diet,” GMAT Reading Comprehension
• Should the soft spring breath of kindly appreciation warm GMAT Reading Comprehension
• In Manhattan, The Beauty of The Night Sky is Only a Faded Metaphor GMAT Reading Comprehension
• The Advanced Access Content System (AACS) is a copy protection technology GMAT Reading Comprehension
• One of the first attempts to peer into the living human brain GMAT Reading Comprehension
• Nitrogen, Which Comprises 78 Percent of Earth's Atmosphere GMAT Reading Comprehension.
• An Experiment Conducted Aboard Space Lab in 1983 GMAT Reading Comprehension
• The Parthenon has Long been Regarded as One of the Great Architectural GMAT Reading Comprehension
• Geologists Harris and Gass Hypothesized that the Red Sea Rift Developed GMAT Reading Comprehension
• Generally, Interspecific Matings Represent an Evolutionary Dead End, Producing Sterile Offspring GMAT Reading Comprehension