Hi, Krishna! Orion here to answer your question.
The recommendation to cite fake studies in your Issue essay takes advantage of the fact that the GRE is an aptitude (rather than an achievement) test. This basically means that it would be both illegal and unethical for students’ responses to be evaluated based on their demonstrated knowledge of the essay prompt. This would be akin to, say, basing IQ scores on knowledge of the US state capitals. “What does memorizing these fifty facts have to do with my intelligence?” you could plausibly argue (and you would have a point). Similarly, demonstrated knowledge of any of the specific essay prompts on the GRE would be somewhat irrelevant to evaluating students’ preparedness for graduate-level study, in general. So ETS doesn’t do it.
Plagiarism is a big no-no (in grad school and beyond). However, if your citations are fabricated, how could you possibly be presenting another’s language or ideas as your own? If anything, coming up with your own studies should reduce the likelihood of plagiarism (even inadvertently) occurring. So you should be in the clear as far as these rules go. Hope this helps!