Suppose an economist believes that the price level in the economy is directly related to the money supply, or the amount of money circulating in the economy. The economist proposes the following relationship:
P= A x M
P= Price Leavel
M= Money Supply
A = a composition of other factors, including real GDP, that change very slowly over time.
How might an economist gather empirical data to test the proposed relationship between money and the price level?
A. An economist would persuade the Federal Reserve to change the money supply to various levels, and observe the resulting changes in the price level.
B. An economist would look for data on past changes in the money supply, and note the resulting changes in the price level
C. Economists do not usually develop theoretical models of the economy but only analyze summary statistics about the current state of the economy.
D. Unlike researchers in the hard sciences, economists cannot study complex relationships using data.

One of the greatest challenges that macroeconomists face is that they cannot carry on scientific research since the whole economy cannot be controlled. Only microeconomic scientific research can be done under special circumstances, but that involves only 1 company or industry.

That is why macroeconomists carry on research by collecting and analyzing past data about the economy and how it is affected by government actions, they monitor economic trends, and finally develop forecast models.