Question

What method could an economist use to gather empirical data in order to test the proposed relationship between money and the price level?

A.An economist would look for data on past changes in the money supply and note the resulting changes in the price level
B.Economists do not usually develop theoretical models of the economy but only analyze summary statistics about the current state of the
C.economy
E.Unlike researchers in the hard sciences, economists cannot study complex relationships using data.
F.An economist would persuade the Federal Reserve to change the money supply to various levens, and observe the resulting changes in the
price level

Answer 1

An economist would analyze historical data on money supply and price level changes to empirically test their proposed relationship, taking into account potential biases and variations in data interpretation.

Step-by-step explanation:

To gather empirical data to test the proposed relationship between money and the price level, an economist would typically look for past data on changes in the money supply and observe the resulting changes in the price level. This method allows economists to conduct time series analyses, comparing fluctuations in the money supply with concurrent trends in price indexes, such as the Consumer Price Index (CPI). By analyzing this data, the economist seeks to establish a correlation or causation link between the two variables.

It is crucial to understand that economists utilize a basket of goods and services to measure the price level, tracking how their total cost changes over time. Nevertheless, this approach has inherent challenges such as substitution bias and quality/new goods bias, necessitating sophisticated methods to account for these issues. Moreover, economists must be aware that the same data can lead to different conclusions based on various models, assumptions, or the political and economic perspective of the analysts interpreting the data.