Challenging a Theory

Author:  Ali Farhan

Institution:  repss
Date:  September 2007

The discipline of economics can be highly mathematical, and when added to that, the need for a strong understanding of economic theory, it seems that basic economics research may be beyond undergraduate students. However, the recent article by Leong and Chiba, undergraduate students at Boston University, demonstrates that sound mathematical techniques applied to a specific theory of economics is not only possible, but can yield interesting results. The authors tested the assumptions and limitations of the IS/LM, a model about monetary policies. Although not conclusive enough, they did present tentative evidence challenging the assumption of IS/LM that monetary policies do not influence long-term economic variables such as GDP growth. Although this result requires further research, it opens up the possibility for a refinement of the IS/LM model.