Robert Lucas argued that the theory of rational expectations suggests that tax cuts will work if used temporarily.

Question

Quizplus · Accepted Answer

Robert Lucas, associated with the rational expectations theory, actually argued that people would anticipate the future reversal of a temporary tax cut, leading them to save the extra income rather than spend it, thus reducing the effectiveness of temporary tax cuts in stimulating economic activity.

Robert Lucas Argued That the Theory of Rational Expectations Suggests