Review

With the sharp increase in food prices in 1973 and 1974, the world food-population ratio began to receive increasing attention. Writers in both professional journals and more widely read magazines have pointed to the prospect of rising world food costs and starvation in the years ahead. The recent predictions, that per capita food production will decline, are consistent with the basic classical argument of the early 1800’s that the growth rate of the world population tends to exceed that of food production.

The standard Keynesian view is that actions taken by monetary authorities affect aggregate demand by altering interest rates. Since investment and consumption presumably depend primarily on intermediate and long-term rates and central banks operate primarily in short-term markets, a transmission mechanism is needed to explain how monetary policy affects aggregate demand. Expressing long-term rates as a distributed lag of short-term rates provides one such link.