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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Consider the following: Two researchers, A and B, are trying to determine whether eating fatty foods leads to heart attacks. The researchers proceed differently. Researcher A builds a model in which fatty foods may first affect X in one’s body, and if X is affected, then Y may be affected, and if Y is affected, then Z may be affected. Finally, if Z is affected, the heart is affected, and the individual has an increased probability of suffering a heart attack. Researcher B doesn’t proceed in this step-by-step fashion. She conducts an experiment to see whether people who eat many fatty foods have more, fewer, or the same number of heart attacks as people who eat few fatty foods. Which researcher’s methods have more in common with the research methodology implicit in the Keynesian transmission mechanism? Which researcher’s methods have more in common with the research methodology implicit in the monetarist transmission mechanism? Explain your answer.

To determine

Keynesian transmission mechanism and monetary transmission mechanism.

Explanation

The Keynesian transmission mechanism states that an increase in money supply affects the aggregate demand through the changes in the rate of interest or exchange rates. This would mean that there is an indirect link between the money market and goods market through the rate of interest. In the given example, Researcher A follows the Keynesian transmission mechanism because he appears to get an indirect link between fatty foods and heart attack. That is, the fatty food affects X, Y, and Z of their body before a cardiac arrest occurs. On the other hand, the method followed by Researcher B seems to like the monetarist transmission mechanism. The monetarist transmission mechanism shows a direct link between the goods market and money market. Here, Researcher B looks only for the intake of fatty foods and cardiac arrest and little else rather than the step-by-step procedure as done by Researcher A.

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