The Lucas rational expectations model and the frictionless classical model
A)both allow for transitory deviation from full employment
B)both predict that neither fiscal nor monetary policy can affect the equilibrium level of output in the long run
C)both predict that the short-run outcome will be different depending on whether a policy is anticipated or unanticipated
D)disagree in one aspect: the classical model assumes that people do not make systematic errors, but Lucas assumes they do
E)disagree on the long-run outcome of fiscal policy changes

Question

Quizplus · Accepted Answer

Both models predict that in the long run, neither fiscal nor monetary policy can affect the equilibrium level of output, as they assume markets clear and expectations adjust.

The Lucas Rational Expectations Model and the Frictionless Classical Model