Let a firm, under normal circumstances, produce 100,000 units of some good Y. If the price of Y were to increase at a rate that matched the overall inflation of 10 percent, then the Lucas model would predict that the firm would produce
A) less than 100,000 units.
B) more than 100,000 units.
C) exactly 100,000 units.
D) more or less than 100,000 units depending on the real rate of interest.
E) more or less than 100,000 units depending on unspecified economic conditions.

Question

Quizplus · Accepted Answer

The Lucas model suggests that if the price increase matches the overall inflation rate, the firm would not change its production level, as the real price remains unchanged.

Let a Firm, Under Normal Circumstances, Produce 100,000 Units of Some