As general price variability climbs, the Lucas supply curve
A) must grow steeper.
B) must grow flatter.
C) must shift out from the vertical axis.
D) must shift in toward the vertical axis.
E) is left unaffected.

Question

Quizplus · Accepted Answer

The Lucas supply curve posits that as general price variability increases, suppliers' ability to distinguish between changes in relative prices and changes in the general price level diminishes. This leads to a more responsive supply to perceived real price changes, making the curve steeper.

As General Price Variability Climbs, the Lucas Supply Curve