Switzerland has experienced the lowest rate of price increases in the post World War II period.Consequently,Lucas would predict
A)small supply responses to variations in the inflation rate.
B)large supply responses to variations in the inflation rate.
C)small demand responses to variations in the inflation rate.
D)large demand responses to variations in the inflation rate.

Question

Quizplus · Accepted Answer

According to Lucas, if there are low rates of inflation, there will be large supply responses to variations in inflation rates. This is because producers see a smaller incentive to raise prices when inflation is low, and consumers will be more responsive to price changes. Therefore, in the case of Switzerland, we can expect large supply responses to variations in the inflation rate.

Switzerland Has Experienced the Lowest Rate of Price Increases in the Post